Advances to Contractors

Advances to Contractors

• 1264 E -Para No.64 of the 12th chapter of the Indian Railways Engineering Code   

 

•  ACS (Engineering Code ) 58 dated 27.04.2022  Click here  

 

Salient features: 

• As far as possible abstain from giving advances to Contractors.  That means No payment is made except for work actually done. 

• GMs may, however, sanction subject to

1. Within the delegation of powers of GM

2. Works should be capital intensive. 

3. Works should be specialized in nature.  

4. The estimated value of the Tender should exceed Rs. 50 Crores (Exception: for Advances in exceptional cases - There is no minimum value.)

Advances to Contractors - 4 kinds 

SN	Advance to  Contractors	Maximum Advance	Minimum value of Tenders	Other features & conditions
1	Mobilization Advance	10 %  of the Contract value	Above Rs.50 Crores	Stage I -  5% (on signing the Agreement) Stage II - 5% - on submission of utilization certificate of Stage I advance by the Contractor and mobilization of site establishment, setting up offices, bringing in equipment and commencement of work  Irrecoverable Guarantee (Bank Guarantee from Nationalized Bank,  FDR, KVP, NSC)  for 110% of the value of sanctioned advance (covering principal & Interest)
2	Against Machinery & Equipment	10 % of the Contract value   Or  75% of the Purchase price Whichever is less	Above Rs. 50 Crores	Hypothecated to the President of India by a suitable Bond  Or   Irrecoverable Bank guarantee for full cost of Plant & Equipment from Nationalised Bank    Insured for the full value for the entire period of completion of work.  Against New one  Shall not be removed from the site without the permission of the Engineer
3	Accelerating progress of the work	5% of the Contract value	Above Rs.50 Crores	Decided on the merits of each case  Recommended by Engineer and consultation with the associate finance No extension of Date of completion on account of Contractor  Irrecoverable Guarantee (Bank Guarantee from Nationalized Bank,  FDR, KVP, NSC)  for 110% of the value of sanctioned advance (covering principal & Interest)
4	Exceptional cases	Rs. 20 Lakhs	For all contracts (no minimum limit)	Decided on the merits of each case  Recommended by Engineer and consultation with the associate finance Irrecoverable Guarantee (Bank Guarantee from Nationalized Bank,  FDR, KVP, NSC)  for 110% of the value of sanctioned advance (covering principal & Interest)

Other features:  

• Interest rate to be decided by the Railway Board at the beginning of the Financial Year.  The same will be applicable to the tenders to be opened in that Financial Year.  

 

•  The recovery shall commence - When the value of the contract executed reaches 15% of the original contract value 

 

•  The recovery shall be complete - When the value of the work executed reaches 85% of the original contract value. 

 

•  The installments on each "on account bill" will be on a pro-rata basis; 

 

•  Grant of advance is primarily in Railway's own interest 

 

•   Not eligible - same Advance for same work from different officers. 

 

•   Accounts Office - responsible for payment & recovery of such advances.

Recovery of Interest:

•  Interest shall be recovered on the advance outstanding for the period commencing from the date of payment of advance till the date of the particular on-account bill 

 

•  Adjusted fully against the on-account bill along with pro-rata principal recovery.  

Key Takeaways for MCQ 

1. 12th Chapter (Para 64) of Engineering Code and ACS 58 dated 27.04.2022 

2. The estimated value of the Tender - should exceed Rs. 50 Crores (However this rule will not be applicable for Advances in exceptional cases.) 

3. Exceptional cases - Maximum Advance is Rs.20 Lakhs.   

4. Mobilisation Advance  - Two stages (each stage 5%) - Maximum is 10% of Tender Value. 

5. Advance against Machinery & Plant  - Maximum Advance is 10 % of Tender Value or 75% of purchase price whichever is less.  

6. Advance for accelerating progress of work  - Maximum Advance is 5% of Contract Value.  

7. All kinds of Advances except against Machinery & Equipment -  Irrecoverable Guarantee (Bank Guarantee from Nationalized Bank,  FDR, KVP, NSC)  for 110% of the value of sanctioned advance (covering principal & Interest)  

8. Recovery shall commence - the value of the Contract executed reaches 15%  of the original Contract value and shall be completed when the value of the contract reaches 85 % of the Original Contract value. 

***

Eligibility Criteria in works Tenders - Financial, Technical and Bid Capacity

 

Eligibility Criteria in works Tenders 

Source: Para 10 of Part I of GCC of Works, 2022 April

 

Three types

1. Technical Eligibility Criteria    2. Financial Eligibility Criteria  3.  Bid Capacity 

• Difference between the Technical Eligibility Criteria and Financial Eligibility Criteria is, the former considers Similar works, where as latter considers all works (incl: similar works)

• Bid capacity shows the Contractor's financial resources / capability of executing the  big projects   i.e., valued Rs. 20 Crores and above,  if awarded.

Technical Eligibility Criteria 

• The Tenderer must have completed similar works as prescribed below in the last 7 years, ending last day of month previous to the one in which Tender is  invited.

• That means Tender is invited on 6th February 2019,  The last day of previous month is January 31st, 2019.  So Seven years reckoned is from 01.02.2012 to 31.01.2019

• Various parameters for completing the similar works in the last 7 years as below.

No of similar works  each	Percentage of Advertised value of Tender
3	30 % and above
2	40% and above
1	60 % and above

Example: 

• If advertised value of Tender is Rs. 20 Crores,  the tenderer is qualified in Technical eligibility criteria, if he executed in last seven years is

1.       one work of Rs. 7 Crores, Second work of Rs. 7.5 Crores and Third work is Rs. 8 Crores  (30 % of advertised work of Rs. 20 Crore  is Rs.6.6 Crores)  

                              OR

2.       one work of Rs. 8.5 Crores and Second work of Rs. 10 Crores   (40% of advertised Work of Rs.20 Crores  is  Rs. 8 Crores 

                                 OR

3.       One work of Rs. 12 Crores above (60% of advertised work of Rs. 20 Crores is Rs. 12 Crores)

• The above percentages are applicable to component wise in Composite works involving more than one department, i.e., Civil work, Electrical work, S&T work etc.

• Up to Rs. 50 Lakhs work - Technical & Financial Eligibility Criteria is not required.     

 

• Composite Works : Involving more than one distinct component (example: Civil, S&T, Electrical etc) - separate completed works of minimum required values shall also be considered for fulfillment of technical eligibility criteria for different components.  

 

• What constitutes a separate component in a composite work shall be clearly pre-defined with estimated tender cost of it, as part of the tender documents without any ambiguity. 

 

• Sub letting - Technical Eligibility:  

• The sub contractor shall have successfully completed at least one work similar to work proposed for sub contract, costing not less 35 % value of work to be sublet, in the last 5 years, ending last day of month previous to the one in which tender is invited through a Work Contract.  

• For subletting of work costing up to Rs. 50 Lakh, no previous work experience of sub contractor shall be asked for by the Railway. 

Financial Eligibility Criteria: 

• The Tenderer must have “Minimum Average Annual Contractual Turn over of   V / N or V whichever is less  ( ACS - Advanced Correction Slip 1 of 14.07.2022) 

 

• V stands for Advertised Value of the Tender in Crores of Rupees. 

• N stands for Number of years prescribed for completion of work for which bids have been invited.  

 

• Calculated as an Average of “Total Contractual payments in the previous 3 Financial Years, as per the audited Balance Sheets.  If the Balance sheet of previous year is yet to be prepared / audited, the audited balance sheet of the Fourth previous year shall be considered. 

• Example: Advertised Tender value is  Rs. 20 Crores.  Tender Opening date is 01.09.2018.  Number of years to complete the work in that Tender is 4 years. Then Financial Eligibility is calculated as below:  

• 2015-16  - Annual contractual turnover  - 5 Crores 

• 2015-16  - Annual contractual turnover  - 8 Crores 

• 2015-16  - Annual contractual turnover  - 5 Crores 

—----------

Total 18 Crores

—--------- 

Average of 3 previous years    - 18/3  =  6 Crores 

Average Annual Contractual turnover of V/N or V whichever is less 

V/N = 20 Crores / 4 = Rs. 5 Crores or V i.e., 20 Crores whichever is less.

Hence Rs. 5 Crores should be minimum 

Hence in the above example, the contractor has fulfilled the Financial Eligibility criteria. 

• The Tenderer should submit the copies of Audited Balance sheets duly certified by CA (Chartered Accountant) or certificate from CA duly supported by the Audited Balance Sheets. 

• Up to Rs. 50 Lakhs work - Technical & Financial Eligibility Criteria is not required.

BID CAPACITY

• Required for works costing Rs. 20 Crores and above only

• Available Bid Capacity should be equal  or more than the Advertised value of Tender

• Available Bid Capacity formula  =  (AxNx2) minus 0.33 x N x B

• A = Payment received in any one Financial Year  - Maximum value of works completed as well as Works in Progress executed and payment received during the last 3 Financial Years or current year (up to date of opening the Tender ).

• N = Number of Years prescribed for completion of work for which Bids / Tenders have been received.

• B = Existing commitments & balance amount of ongoing works  & works awarded, but yet to start with the Tenderer to be completed in next "N" years.  

Example : 

1. Date of opening of Tender: 15th Feb, 2019

2. Advertised value of Tender : Rs. 100 Crores

3. N = 3 years

4. Maximum value of completed works and Works in progress of Contractor ' Ramesh' is as follows. 

Year	Completed works (Rs)	Works in progress (Rs)
2018-19 (up to 15.02.2019)	15 Crores	5 Crores
2017-18	10 Crores	Nil
2016-17	25 Crores	Nil
2015-16	5 Crores	Nil

• Therefore,  A of Contractor Ramesh is Rs. 25 Crores (which is maximum in any financial year of above period)

• B = value of existing commitments & balance amount of ongoing works with the Tenderer Ramesh to be completed in next "N" years.  

Year	Existing commitments & Balance amount of ongoing works
2019-20	Rs. 5 Crores
2020-21	Rs. 7 Crores
2021-22	Rs. 3 Crores
Total	Rs. 15 Crores

• Therefore Contractor Ramesh's  B  = Rs. 15 Crores

• Finally  A = Rs. 25 Crores,    N = 3 years    B = Rs. 15 Crores

• Available Bid Capacity of Contractor Ramesh is (AxNx2) Minus 0.33 x N x B

• = ( Rs.25 Crores x 3 years x 2) minus 0.33 x 3 x 15 Crores. 

• Rs.150 Crores  minus Rs.15 Crores = Rs. 135 Crores

• Hence Contractor Ramesh is qualified to bid the works of value up to Rs. 135 Crores.

Key points for MCQ:

1. Eligibility criteria  - 3 Types A. Technical eligibility criteria B. Financial eligibility criteria & C. Bid Capacity  

 

2. Up to Rs. 50 Lakhs - Technical & Financial not required 

 

3. Up to Rs. 20 Crores - Bid Capacity is not required  

 

4. Bid Capacity formulae:  (A x N x 2) minus 0.33 x N x B 

 

5. “A” stands for Payment received in any one Financial year (out of last 3 Financial years  or current year (up to the date of opening the tender)  

 

6.  “N” stands for Number of years prescribed for completion of the Work 

 

7. “B” stands for Existing commitments & Balance amount of ongoing works & works awarded, but yet to commenced to be completed in next N years 

 

8. Technical eligibility - Last 7 years ending last day of previous month to the one in which the Tender is invited.  

 

9. Technical eligibility:  3 works - 30% and above,   2 works  - 40% and above,   1 work - 60% and above 

 

10. Subletting of work costing up to Rs. 50 Lakhs - Previous experience of Sub Contractor is not required.  

 

11. Financial eligibility - Minimum average annual turnover of V / N or V whichever is less.  V stands for Advertised Value of the Tender and N stands for Number of years prescribed for completion of the work for which bids have been invited. 

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