PART- V / CHAPTER II
LEVY OF LIQUIDATED DAMAGES
2.0The remedies in case of breach laid down in the contract documents are:-
a.Cancellation of the contract and recovery of any loss or damage which the Railway may sustain by reason of such failure on the part of the contractor, or
b. Purchase elsewhere at the contractor's risk or
c. Recovery from the contractor of a sum of 2% of the contract price of the consignment per month or part during which the supply may be in arrears up to the amount of the actual loss sustained by the Railway. The authority who has approved the tender may be given full powers to impose or waive these penalties in respect of contracts entered into under his own powers and in the case of tenders accepted by GM, C O S would be the competent authority.
When waiving a penalty, the reasons for doing so must be fully recorded on the relevant files and the Stores Bill forwarded to the FA & CAO suitably endorsed.
Authority: Para 132 (4)-S and
Board's letter No. 86/RS (G)/779/8 dated 29.02.1988 – (Annexure` V/1-11)
2.1 The levy of liquidated damages should be regulated as follows.
2.1.1 (a) in cases where actual or potential loss has been incurred due to the failure of suppliers to put in supplies within the contracted delivery period, liquidated damage within the ceiling of amount calculated under the contract should be levied.
(b). In cases where actual or potential loss is less than the amount calculated at the rate of 10 percent of the leviable liquidated damages, the higher of the two figures should be recovered.
2.1.2 In cases of inconvenience, which can be quantified in terms of money, similar action as at 2.1.1 above should be taken. Where inconvenience caused cannot be quantified in terms of money, the existing procedure of levy of liquidated damages at the rate of 10 per cent of 2 percent should be followed.
2.1.3 Where there is no loss or inconvenience, token L/Ds of 10 percent of 2 percent may still be charged unless there are facts showing that delay in supply was on account of circumstances beyond the control of contractor and was not in any way wilful.
2.1.4 Wherever extensions to contracted delivery period are granted subject to the levy of LDs, a copy of extension letter should invariably be endorsed to the indentor asking him to indicate clearly whether any loss or inconvenience as been suffered by him on account of belated supplies within a target date be specified in the endorsement. If there had been inconvenience, indentor should attempt to quantify the same and advise the amount.
Authority: Board's letter No. 58/RS(G)775 dated 21st October 1974 – (AnnexureV/2-06)
2.2Additional guiding principles for levy of liquidate damages.
2.2.1 When firms apply for extension of contract delivery period and it is decided to extend the same subject to recovery of liquidated damages for delay in supplies, contractors must be given a warning to this effect in writing at the time of granting extensions. It is not correct to grant extensions without any mention of the liquidated damages if it is propo0sed to recover such charges eventually.
2.2.2 It is also not correct to grant extension of delivery period by merely stating that the extension is granted “without prejudice” to the rights of the purchaser under the terms and conditions of the contract” as this would mean that all the options given in the conditions of contract would be available to the purchaser on the expiry of the extended delivery period and would not amount to exercise of the option to recover liquidated damages from the original date of delivery period to the date of actual supply.
2.2.3 Liquidated damages accrue only in case of delayed supplies. Where or in so far as no supplies have been made under a contract, upon cancellation, recovery of only the loss occasioned there by can be made, not with standing the fact that prior to the cancellation one or more extensions of the delivery period with reservation of right to liquidated damages were granted.
2.2.4 Where price preference has been given for earlier delivery, no liquidated damages can be recovered in addition to the amount of price preference for the period of delay up to the delivery date offered by the lowest acceptable tenderer.
2.2.5 Government Establishments/Departments, as distinct from Public Sector Undertakings, undertaking contract work should not be dealt with as ordinary contractors and they should not generally be penalised for late delivery in terms of the conditions of the contract and claims for loss on re-purchase should not be enforced against them. Serious cases of defaults should, however, be brought to the notice of the Head of the Department or the State Government concerned.
2.2.6 Public Sector undertakings should be treated on a different footing from that of the Government Establishments/Departments. Relaxations allowed to Government Establishments / Departments, as above will not apply to Public Sector Undertakings as a matter of course. Each case should be decided on merits and the decision to waive th4 recovery of liquidated damages or risk purchase expenditure should be taken with the sanction of competent authority, in consultation with associate finance.
2.2.7 In regard to contracts requiring raw materials, the distribution of which is controlled by Government e.g. Iron & Steel etc., no liquidated damages should be levied unless wilful default is established. Each case will have to be examined independently and necessary amendment to delivery period, without levy of liquidated damages should be issued in cases where the delay was not attributable to the contractor.
2.2.8 In the case of supply orders placed against the rtes contracts, normally the delivery date stipulated in the supply order is not binding on the sup0plier and there fore, no liquidated damages could be levied for non-supply or delay in supply against such orders. However, in cases, where delivery date is stipulated in the relevant order have been expressly agreed to by the supplier in writing before placing the relevant order, liquidated damages can be recovered from the supplier on account of delay in delivery beyond the stipulated delivery date, provided the Government has not in any way interfered with the supplier's discretion to meet the said supply order by directing the supplier to give priority to some other supply orders.
2.2.9 Cases where liquidated damages are to be recovered should be reported to the D.G.S. & D for settlement in the case of rate contracts placed by him.
2.2.10 In the case of educational or development contracts, liquidated damages are not leviable. However, the nature of such contracts should be declared at the time of placing them.
2.2.11 The levy of liquidated damages, which will be determined on the merits of each case will in any event be limited to 10 percent of the value of the contract, irrespective of the period of delay.
2.2.12 Liquidated damages should be calculated on the contract price including the element of sales tax, excise duty, etc.
2.2.13 No liquidated damages in respect of delays in supplies within the grace period of 21 days will be leviable where Depot/ inspecting Officer/Divisional Officer (who is a direct consignee) has extended delivery period accordingly.
2.2.14 Liquidated damages are leviable only for the guaranteed portion of delivery of contract. To cite an example, if delivery terms stipulated "six months after receipt ofImport Licence" the guaranteed portion of delivery commences after receipt of the Import Licence.
Authority: Board's letters No.581775/RS(C) dated 19th November 1962 – (Annexure V/2-01)
. 58/RS (G) 775 dated 10th May 1967—(Annexure V/2-02) and
68/RS (G) 775 dated 7th June 1968—(Annexure V/2-03)
2.3No liquidated damages need be levied in respect of contracts valued up to Rs.1 lakh subject to the following conditions.
a. that there is no evidence of any loss or inconvenience suffered due to delays in supplies.
b. that no higher prices have been paid for earlier delivery and;
c. that the contract included no-pre-estimated damage clause.
2.3.1 Further powers have also been delegated to purchase officers for waiver of LDs as below:-
Powers to extend delivery date And to waive operation of this clause in
without liquidated damages and supplies up to a maximum period of 6
waival of liquidated damages in months from the date of delivery subject
respect of contracts valued more to purchase officers certifying
than Rs.25,000 and up to
Rs.1 lakh and where supplies
are delayed on account of-
i) Shortage of raw material, j) that the delay is due to shortage of
fuel / power. raw materials fuel power.
ii) On account of steep rise ii) or/and due to steep rise of prices
in prices of industrial inputs
iii) and that the supplies are expected within
a reasonable time.
Note :- While exercising these powers-
i)No finance concurrence is needed.
ii) No loss/no inconvenience certificate from the indentor is not necessary.
2.3.2The above instructions will not, however apply in the following contracts: -
a . Where higher prices have been paid for earlier delivery
b. where the contract includes pre-estimated damages; 2.3.3 For contracts valued above Rs.1 lakh,, the extent instructions should be followed
Authority:Board's letter No. 58/RS (G) 775 dated 17th/29th September 1980 –
(Annexure V/2-07)
2.4 The operation of clause relating to liquidated damages, (including risk purchase and arbitration) appearing in IRS conditions of contract may be waived as a standing measure in respect of contract valued up to Rs. 50, 000/- at the post contract stage so as to avoid disproportionate administrative expenditure in small recoveries. For cases from Rs.25.000/- to Rs.50,000/- A.G.M’s approval should be taken with Finance concurrence.
Authority: Board's letter No.77/RS(G)/779/29 dated 24.10.1980 (Annexure V/2-08) &
86/RS(G)1779/ 38 dated 09.12.1987 (AnnexureV/2-13)
2.4.1 It will be within the General Manager's powers to waive all risk purchases and liquidated damages recoveries in respect of all purchases up to Rs.25000/- and no efforts need be made for the forfeiture of security deposit, deregistration, with holding of payment Of other bills etc. to avoid disproportionate expenditure on administrative expenditure in such small recoveries.
Authority: Board’s letter No.77/RS (G)779/29 dated 07.12.1981 – (Annexure V/2-10)
and No. 77/RS (G)779/29 dated 23/5/83- (AnnexureV/2-11)
2.5 The Ministry of Railways have decided that the existing power of recoveries of liquidated damages and loss due to risk purchase may be enhanced from Rs.2,000/- to Rs.5000/- in each case with penal action, as considered appropriate provided the recovery could be made only by resort to arbitration/legal action. The penal action against the firm including delisting may also be relaxed in line with waiver of liquidated damages, risk purchases etc. and GM may take action as considered appropriate without insisting in each case on delisting of the firm. These powers may also be exercised by C.O.Ss and CMMs.
Authority:Board's letter No.77/RS (G) 779/29 dated 29.12.1977 – (Annexure III/2-01)
No. 77/RS(G)779/29 dated 01.10.1985 – (Annexure V/2-12)
and RS(G)779/29 of 03.04.1998 - (Annexure V/2-14)
2.6 Purchase officers may be permitted to deal with all cases of delayed deliveries where no loss or inconvenience is involved as well as where inconvenience only has been felt without obtaining prior concurrence of the Finance. This power shall be exercised to the extent of the powers delegated under second sub-para of para 132-S but while doing so, the reasons therefor must be fully recorded on the relevant flies.
Authority:Board 1 s letter No.78/RS(G)775 dated 9th September 1968 – (AnnexureV/2-04)
2.7 In case of non-severable contracts where staggered deliveries have been indicated, it may happen that supplies are not received according to the delivery schedule. In such cases, it may be necessary for arranging emergency purchase of limited quantities to bridge the gap in supplies.
2.7.1 In such cases, having regard to the fact that the deliveries indicated under the contract are non-severable, no question of liquidated damages or enforcement of Risk purchase on the original contractor would arise so long as there has been no delay on the part of the original contractor in the completion of supplies with reference to the total delivery period.
Authority: Jt. Director, Finance (Stores) Railway Board, New Delhi -D.O. Letter No.81/F.S.(I)PW.7 / 2 of 20.06.1981 – (AnnexureV/2-09)
2.8 General Damages: - Where liquidated damages cannot be levied in a contract according to legal opinion, general damages may be levied.
Authority: Board's letter No. 70/RS(G)779149 dated 23rd February 1971 – (Annexure V/2-05)
ANNEXURE V/2-01
Copy of letter No. 58/775/RS (G) dated 19th November 1962 received from Shri P. L. Chopra, Dy. Director.Railway Stores Railway Board, New Delhi, addressed to General Managers, All Indian Railways and I. C. F. etc.
Sub:Levy of liquidated damages against the suppliers for not complying
with purchase orders within the stipulated delivery period.
Ref: Board's letter No. 58/775/RS (G) dated 4th May 1960.
Appropose the implementation of the guiding principles for assessing the liquidated damages enunciated in Board's letter quoted above, a few Railways have approached the Board for clarification on the points mentioned below. These have been carefully considered by the Board in consultation with the Ministry of Works Housing and supply and the decisions arrived at are indicated below against each: -
Sr.No. / Points of doubts / Board’s decision1. / Whether token liquidated damages to the extent of 20 per cent can be levied in lieu of any loss that can be estimated in terms of earnings in addition to other items of actual loss. (Token liquidated damages of 20 per cent are applicable in case of wagons, locomotives etc., while in the case of boilers, cranes etc. it is 10 per cent as explained in para 1 (iii) of Board's letter dated 4th May 1960). / (a)Extra expenditure involved due to delay in supply attributable to the supplier on account of fluctuations in market, price, higher price paid for earlier delivery, price variation clause, imposition or increase in customs duty, excise duty, freight exchange rate etc. should be recovered on actual where extensions has been allowed subject to such stipulation and/ or where a price preference clause for earlier delivery has been incorporated in the contract.
(b)In addition to the above, token liquidated damages may be recovered where losses in terms of estimated earnings or other kind of losses are involved which are not capable of monetary computation. In cases where such an assessment is possible, the assessed amount may be recovered subject to this amount not exceeding the amount of liquidated damages recoverable under the Contract. It should however be made clear to the contractor while extending the date of delivery period that any increase in price on account of any statutory increase in or fresh imposition of customs duty Sales Tax, wage or material escalation etc. will be on the Contractors' account. A copy of the form of letter in use on the D. G. S. & D. side for extending the delivery dates is enclosed which may be used in normal cases on the Railways.
Sr.No. / Points of doubts / Board’s decision
2. / Whether the terms 'legally recoverable' should be construed to denote reasonable compensation not exceeding the amount as specifi6d in the contract. / The term 'legally recoverable' should be construed to mean the amount specified in the contract i. e., either the predetermined amount wherever provided or 1/2 per cent per week or a part of week of the value of stores not delivered or delivered late for contracts governed by the I. R. S. Conditions of Contract.
3. / Whether it is possible to recover the token liquidated damages in terms of para 1 (iii) of Board's letter of 4th May 1960 in addition to actual loss in all cases even if the amount thus calculated exceeds the maximum liquidated damages specified in the contract. / Same remarks as against item 1.
4. / What is the necessity for a special provision in the contract in terms of para 1 (iv) of Board's letter dated 4th May 1960 when a provision for the recovery of liquidated damages already exists in the I. R. S. Conditions of Contract? / I.R. S. Conditions of Contract provide for the recovery of damages in normal cases. In some cases it is necessary to predetermine the extent of loss/damages to be recovered in case of breach of contract. A special clause in the contract is therefore, necessary in such cases. In this connection an extract from the opinion of the learned Solicitor General of India dated 5th July 1952 is also enclosed.
5. / Whether 1/2 (Half) percent penalty can be imposed even there is no loss / Maximum penalty stipulated in the contract should be imposed where loss to that extent can be proved. If not, 10 percent or 20 percent as the case may be of the amount stipulated in the contract may be recovered.
6. / The circumstances under which liquidated damages should be levied where the actual loss can be calculated or where it cannot be calculated. / It is rather difficult to specify the circumstances under which such charges could be recovered. Each case has to be considered on its merits as Already mentioned in sub-para 1 (i) of Board’s letter dated 4th May 1960.
7. / Whether the provision of 10 percent token damages is to be incorporated in the I.R.S. Condition of Contract. / The amount legally recoverable is specified in I.R.S. Conditions of Contract. The extent to wwhich such damages are to be recovered actually in each case should not there fore, form a part of such conditions.
Certain additional guiding principles as adopted from the procedure followed by the D. G. S. &. D. in the matter of levy of liquidated damages are also enclosed for information.
Enclosure to Board's letter No. 58/775/AS (G) dated 19th November 1962.
To
M/S……………………
Sub: Acceptance of tender No…………………dated…………………..
for the supply of………………………against Indent No.
dated……………………………………………………………….
Ref: Your letter No…………………….dated……………………
Dear Sir,
You have failed to deliver the stores (the entire quantity of the stores) within the contract delivery period (Delivery period as last extended upto). In your letter under reply you have asked for (further) extension of time for delivery. In view of the circumstances stated in your said letter the time for delivery is extended from...... to………………Please note that an amount equal to the liquidated damages for delay in the supply of the stores after the expiry of the contract delivery period shall be recovered from you for the extended period notwithstanding the grant of this extension. You may now tender the stores (balance of the stores) for inspection in terms of this letter (and any stores already tendered by you for inspection but not inspected will be now inspected accordingly).
2. The above extension of delivery date will also be subject to the following further conditions
(a) That no increase in price on account of any statutory increase in or fresh imposition of customs duty, excise duty, Sales Tax or on account of any other tax or duty leviable in respect of the stores specified in the said Acceptance of tender which takes place after** shall be admissible on such of the said stores as are delivered after the said date: and
(b) That notwithstanding any stipulation in the contract for increase in price on any other ground no such increase shall be admissible on such of the said stores as are delivered after**
(c) But nevertheless, the Purchaser shall be entitled to the benefit of any decrease in price on account of reduction in or remission of customs duty, excise duty, sales tax or on account of any other tax or duty or on any other ground as stipulated in the price variation clause which takes place after the expiry of the above mentioned date namely**