The Ministry of Finance has issued an OM, ‘Performance Security in terms of Rule 171 of General Financial Rules, 2017 (GFR) – Guidelines’

The Ministry of Finance has issued an Office Memorandum, ‘Performance Security in terms of Rule 171 of General Financial Rules, 2017 (GFR) – Guidelines’ dated May 13, 2020.

Rule 171 of GFR prescribes that performance security must be obtained from successful bidder which is awarded the contract amounting to 5-10% of the value of contract as specified in the bid documents and such performance security is for a period of 60 days beyond the date of completion of all contractual obligations of the supplier including warranty obligations. 

On account of lockdown situation prevailing in the country, restrictions have been placed on movement of goods, services and manpower, supply chains have broken and payment cycle too has got disrupted. Contractors who have otherwise fulfilled their obligations are facing liquidity problems impacting future performance.

In view of the above, the Ministry has directed that in the following circumstances the contractee (Government Department/Agency) may return the value of the performance security to the contractor/supplier as is proportional to the supplies made/contract work completed to the total contract value:

1.                  Where an application is made by contractor who is not in default of any contractual obligation; or

2.                  Where FMC is invoked by contractor and the requirements of FMC are fulfilled.

However, where contractor/supplier is in violation of the contractual obligation, the contractor shall be under no obligation to take action as per these guidelines.

It is further clarified that the guidelines apply only in respect of such non-performance which is attributable to lockdown situation or restrictions imposed under any Act or executive order of Government on account of COVID-19.