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. 

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