Govt offers two relaxation measures to Covid's successful contracts

NEW DELHI: In an effort to provide some relief to private contractors hired by central government agencies, the government announced two major relaxations on Wednesday; extension of up to six months to complete the work and partial release of bank guarantees to complete much of the project to increase liquidity.

These relaxations will also be extended to contracts for goods and services.

The government's first measure will ensure that contractors have no problems with banks and other financial agencies because of delays in meeting milestones set by clients such as NHAI, the ministry of road transport, railways and CPWD. The second decision to partially release the bank guarantee will benefit small contractors the most, as it will facilitate their cash flow for project execution. Smaller contractors generally have a higher cost for the bank guarantee, as financial institutions seek higher guarantees.

The government said the real of the partial bank guarantee will be to the extent that the contracts are partially completed. For example, if 80% of a project or job is completed, the customer will release 80% of the bank guarantee submitted by the contractor.

There are thousands of contracts executed by private actors for central government agencies. In the road sector alone, there are more than 1,500 live contracts. “Each contract has a provision to grant an extension of time for a valid reason. In this case, work was suspended due to the national closure announced by the government and therefore it is our responsibility to extend the contract period for all affected projects, including those under a public-private partnership (PPP), said a government official.

Authorities said that since government agencies will grant an extension of time for contracts, there will be no room for private contractors to file claims. However, the cost escalation provision provided in the contracts will be effective.