Govt offers two relaxation to Covid hit contracts

NEW DELHI: In a move to bring some relief to private contractors engaged by Central government agencies, the government on Wednesday announced two major relaxations; up to six months extension for completing the work and partial release of bank guarantees for completing large part of the project to increase liquidity.
These relaxations will be extended to goods and services contracts as well.
The first move by the government will ensure that the contractors face no problem from banks and other financing agencies for delay in meeting the milestones set by the clients such as NHAI, road transport ministry, railways and CPWD. The second decision of partial release of bank guarantee will benefit small contractors more as it will ease their cash flow for executing projects. Usually the smaller contractors bear higher cost for bank guarantee as financial institutions seek higher collateral.
The government said the real of partial bank guarantee will be to the extent of contracts are partially completed. For example, if 80% of a project or work is completed, then the client will release 80% of the bank guarantee submitted by the contractor.
There are thousands of contracts being executed by private players for the Central government agencies. Only in the highways sector there are more than 1,500 live contracts. “Every contract has provision for giving extension of time for valid reason. In this case, the work has been suspended because of national lockdown announced by the government and hence it’s our responsibility to extend the contract period for all impacted projects including the ones under public private partnership (PPP),” said a government official.
Officials said since the government agencies will give extension of time for contracts, there will be no room for private contractors to raise claims. However, the provision of cost escalation which is provided in the contracts will be effective.