CONTRACTS AND CONSTITUTION-LAW OF CONTRACTS

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CONTRACTS AND CONSTITUTION-LAW OF CONTRACTS

• K.N. VENKATA RAMAN
• PROCUREMENT CONSULTANT

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CONTRACT MANAGEMENT

• CONTRACTS
• AND ITS MANAGEMENT

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CONTRACTS

• THE WORD CONTRACT IS DERIVED FROM LATIN WORD
  CONTRACTUM WHICH MEANS DRAWN TOGETHER
• EVERY PROMISE OR EVERY SET OF PROMISES FORMIMG
  THE CONSIDERATION FOR EACH OTHERS IS AN AGREEMENT

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CONTRACTS (CONTD)

• CONTRACT IS AN AGREEMENT BETWEEN TWO OR MORE
  PARTIES, WHICH IS ENFORCEABLE BY LAW
• TO FORM AN AGREEMENT THERE MUST BE A PROPOSAL OR
  OFFER BY ONE PARTY AND ITS ACCEPTANCE BY ANOTHER
• AGREEMENT OFFER ACCEPTANCE

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ESSENTIALS OF A VALID CONTRACT

• A VALID CONTRACT IS ONE WHICH IS ENFORCEABLE AND
  BECOMES BINDING ON THE PARTIES
• THERE MUST BE A PROPOSAL AND ACCEPTANCE OR
  MEETING OF MINDS
• AGREEMENT MUST BE BETWEEN PARTIES COMPETENT TO
  CONTRACT
• PARTIES MUST GIVE THEIR FREE CONSENT
• AGREEMENT MUST BE SUPPORTED BY CONSIDERATIONS
  WHICH MUST BE LAWFUL

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ESSENTIALS OF A VALID CONTRACT (CONTD)

• OBJECT OF AGREEMENT MUST BE LAWFUL
• AGREEMENT MUST NOT HAVE BEEN EXPRESSELY DECLARED
  VOID BY ANY LAW IN FORCE IN THE INDIA
• AGREEMENT MUST BE CERTAIN AND NOT VAGUE OR
  INDEFINITE
• LEGAL FORMALITIES (STATUTORY REQUIREMENTS OF
  MAKING IN WRITING, IN PRESENCE OF WITNESSES OR
  REGISTERED OR SIGNED BY AUTHORIZED PERSONS) MUSST
  BE COMPLIED WITH

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REQUIREMENTS OF A VALID CONTRACT

• MUST BE UNCONDITIONAL
• MUST BE MADE AT THE PROPER PLACE
• MUST CONFORM TO THE TERMS OF OBLIGATIONS
• MUST BE MADE AT THE PROPER TIME
• MUST BE MADE IN PROPER FORM
• PARTIES MUST BE ABLE AND WILLING TO PERFORM ITS
  OBLIGATION
• THERE MUST BE REASONABLE OPPORTUNITY FOR
  INSPECTION
• MUST BE MADE TO THE PROPER PERSON
• MUST BE FOR FULL AMOUNT

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OVERVIEW OF CONTRACT LAW

• LAW OF CONTRACTS MAY BE DESCRIBED AS THE
  ENDEAVOUR OF PUBLIC AUTHORITIES TO ESTABLISH A
  POSITIVE SANCTION FOR THE EXPECTATION OF GOOD
  FAITH WHICH HAS GROWN UP IN THE MUTUAL DEALINGS
  OF MEN
• IN CIVIL LAW OR THE LAW OF THE STATE OR THE LAND,
  LAW SIGNIFIES A COMMAND FROM A SUPERIOR AUTHORITY
  PRESCRIBING A COURSE OF ACTION, DISOBEDIENCE
  WHICH WOULD ENTITLE PUNISHMENT
• THE OBJECT OF THE LAW OF CONTRACTS IS TO REGULATE
  THE DEALINGS BETWEEN INDIVIDUALS/ PARTIES

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OVER VIEW OF CONTRACT LAW (CONTD)

• LAW OF CONTRACTS IS NOT THE WHOLE LAW OF
  AGREEMENTS NOR IS IT THE WHOLE LAW OF
  OBLIGATIONS IT IS THE LAW OF THOSE AGREEMENTS,
  WHICH CREATE OBLIGATION AND THOSE OBLIGATIONS
  WHICH HAVE THEIR SOURCE IN AGREEMENT

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OVER VIEW OF CONTRACT LAW (CONTD)

• BROAD CLASSIFICATION OF LAW- PUBLIC AND PRIVATE
• PUBLIC LAW DEALS WITH THE ADMINISTRATIVE POWERS
  OF STATE AND ALSO CERTAIN RELATIONS BETWEEN THE
  STATE AND THE INDIVIDUAL
• PRIVATE LAW DEALS WITH THE RIGHTS OF SUBJECTS
  INTERSE
• INDIAN CONTRACT ACT 1872

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GOVERNMENT AND PRIVATE CONTRACTS

• MOST OF THE MAJOR INFRASTRUCTURE PROJECTS IN OUR
  COUNTRY FOR THE PRESENT ARE BEING EXECUTED BY
  GOVERNMENT AND HENCE MOST OF THE CONTRACTS ARE
  PUBLIC CONTRACTS GOVERNED BY PUBLIC LAW
• MAJOR PART OF THE GOVERNMENT EXPENDITURE IS
  THROUGH THE PROCUREMENT OF GOODS, SERVICES AND
  CONSTRUCTION ACTIVITY

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PUBLIC PROCUREMENT

• PUBLIC PROCUREMENT IS ACQUISITION OF GOODS,
  SERVICES AND PUBLIC WORKS IN A TIMELY MANNER THAT
  RESULTS IN BEST VALUE TO THE GOVERNMENT AND PEOPLE

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CONSTITUTION AND CONTRACTS

• ARTICLES 298, 299, 14 AND 19

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ARTICLE 298, POWER TO CARRY ON TRADE ETC.

• Under this article, Executive power of the Union
  and States extends to carrying on of any trade,
  disposal of property and making of contracts for
  the same I.e. Public Procurement
• For such PP, the Government does not require any
  additional powers, it can have by entering to
  contracts
• The power to enter into contracts for PP is
  therefore expressly vested in the Government
  under this Article.

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ARTICLE 299 CONSTITUTIONAL REQUIREMENTS OF A
GOVERNMENT CONTRACT

• ALL CONTRACTS MADE IN THE EXERCISE OF THE
  EXECUTIVE POWER OF THE UNION OR STATE BE
  EXPRESSED TO BE MADE BY THE PRESIDENT OR GOVERNOR
  OF STATE AND ALL SUCH CONTRACTS AND ALL
  ASSURANCES OF PROPERTY MADE IN THE EXERCISE OF
  THAT POWER SHALL BE EXECUTED ON BEHALF OF
  PRESIDENT OR GOVERNOR BY SUCH PERSONS AND IN SUCH
  MANNER AS HE MAY DIRECT OR AUTHORIZE

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ARTICLE 299 CONSTITUTIONAL REQUIREMENTS OF A
GOVERNMENT CONTRACT (CONTD)

• NEITHER PRESIDENT NOR GOVERNOR SHALL BE
  PERSONALLY LIABLE IN RESPECT OF ANY CONTRACT OR
  ASSURANCE MADE OR EXECUTED FOR PURPOSE OF
  CONSTITUTION OR ANY ENACTMENT RELATING TO GOI IN
  FORCE NOR SHALL ANY PERSON MAKING OR EXECUTING
  ANY SUCH CONTRACT OR ASSURANCE ON BEHALF OF ANY
  OF THEM BE PERSONALLY LIABLE IN RESPECT THEREOF
• IN ORDER THAT PUBLIC FUNDS MAY NOT BE DEPLETED BY
  CLANDESTINE CONTRACTS MADE BY ANY AND EVERY
  PUBLIC SERVANT THERE SHOULD BE DEFINITE PROCEDURE
  ACCORDING TO WHICH CONTRACTS MUST BE MADE.

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EQUALITY OF OPPORTUNITY IN THE MATTER OF
GOVERNMENT CONTRACTS

• ARTICLE 19(1)(G) CONFERS ON ALL CITIZENS A
  FUNDAMENTAL RIGHT TO PRACTICE ANY PROFESSION
  (INCLUDES TAKING AND EXECUTING GOVT CONTRACTS)
  CARRY ON ANY OCCUPATION, TRADE OR BUSINESS
• FAIRPLAY IN ACTION MUST BE THE BASIS OF THE
  POLICY OF THE STATE- ART 14 APPLIES ALSO MATTERS
  OF GOVERNMENT POLICY AND IF THE POLICY OR ANY
  ACTION OF GOVERNMENT EVEN IN CONTRACTUAL MATTERS
  FAILS TO SATISFY THE TEST OF REASONABLENESS IT
  WOULD BE UNCONSTITUTIONAL BASIC REQUIREMENTS OF
  ART 14 IS FAIRNESS IN ACTION BY STATE

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SUMMARY OF GENERAL PRINCIPLES EMBODIED IN
CONSTITUTION

• PROFESSION OF DOING GOVT CONTRACTS IS A
  FUNDAMENTAL RIGHT UNDER CONSTITUTION
• PERSONS PRACTICING GOVT CONTRACTS CANNOT BE
  TREATED ARBITRARILY OR CAPRICIOUSLY
• GOVT CANNOT LIGHTLY BRUSH ASIDE A CONTRACTOR
  WHOSE TENDER IS THE LOWEST REASONS FOR
  REJECTIONS SHOULD BE REASONABLE, COGENT AND
  ACCEPTABLE WITHOUT ARBITRARINESS OR
  DISCRIMINATION

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PRINCIPLES OF PUBLIC PROCUREMENT

• PUBLIC PROCUREMENT SYSTEM CAN BE SAID TO BE WELL
  FUNCTIONING IF IT ACHIEVES THE OBJECTIVES OF
  TRANSPARENCY, COMPETITION, ECONOMY AND EFFICIENCY
  FAIRNESS AND ACCOUNTABILITY

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PRINCIPLES OF PUBLIC PROCUREMENT (CONTD)

• PP INCLUDES PROCUREMENT BY GOVERNMENT AND BY
  STATUTORY BOARDS AND NON-MINISTERIAL BODIES
• PP MUST FOLLOW PRESCRIBED COMPETITIVE PROCEDURES
  AND THE RULES GIVE A MAJOR WEIGHT TO FAIRNESS AND
  EQUITY
• PP IS ALSO SUBJECT TO OVERSIGHT BY LEGISLATURE
  AND AUDIT (IN ADDITION TO INTERNAL ACCOUNTABILITY
  MECHANISMS)
• MISTAKES IN PP CAN HAVE VAST POLITICAL
  REPERCUSSIONS OWING TO THE FOCUS THAT THE MEDIA
  AND THE PUBLIC PLACE ON THE SUBJECT

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PRINCIPLES OF PUBLIC PROCUREMENT (CONTD)

• A KEY PRINCIPLE OF GOOD GOVERNANCE PRESUPPOSES
  CONSISTENT PRINCIPLES AND REGULATIONS FOR
  PROCUREMENT
• INFORMATION AND DOCUMENTATION ON THESE RULES
  SHOULD BE WIDELY AVAILABLE AND THE RULES SHOULD
  BE ENFORCED FAIRLY AND CONSISTENTLY
• THERE SHOULD BE A WELL UNDERSTOOD SYSTEM FOR
  REGISTERING AND RESOLVING COMPLAINTS SPEEDILY

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PRINCIPLES OF PUBLIC PROCUREMENT (CONTD)

• THERE SHOULD BE A WELL FUNCTIONING SYSTEM FOR
  DISPUTE RESOLUTION AND CHECKS ON THE ARBITRARY
  BEHAVIOUR OF PROCUREMENT ENTITIES AND ON THE
  INCONSISTENT EXERCISE OF DISCRETIONARY POWERS IN
  CONTRACT AWARD, ENFORCEMENT AND MANAGEMENT

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PRINCIPLES OF PUBLIC PROCUREMENT (CONTD)

• ACCOUNTABILITY AND TRANSPARENCY ARE VITAL TO
  PROCUREMENT MANAGEMENT
• LACK OF OVERSIGHT MECHANISM TO ENSURE
  ACCOUNTABILITY UNDERMINES THE CAPACITY OF
  GOVERNMENTS TO SECURE THE CONFIDENCE OF
  CONTRACTORS AND SUPPLIERS IN THE PUBLIC
  PROCUREMENT PROCESS AND THE TRUST OF CITIZENS IN
  THE PROPER USE OF PUBLIC FUNDS

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PRINCIPLES OF PUBLIC PROCUREMENT (CONTD)

• TRUST AND CONFIDENCE CAN BE ESPECIALLY ERODED BY
  SECRECY IN PROCUREMENT TRANSACTIONS AT THE LOCAL
  LEVELS (ALTHOUGH A DEGREE OF CONFIDENTIALITY IS
  ESSENTIAL TO PROTECT BUSINESS PRIVACY AND THE
  LEGITIMATE INTERESTS OF INDIVIDUAL BIDDERS)
• TRANSPARENCY REDUCES UNCERTAINTY AND INHIBITS
  CORRUPTION IN PROCUREMENT BY ASSURING EQUALITY OF
  ACCESS TO INFORMATION FOR ALL BIDDERS BEFORE,
  DURING AND AFTER THE BIDDING PROCESS
• THE SYSTEM SHOULD ALSO PROTECT THE INTERESTS OF
  THE CITIZENS

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PRINCIPLES OF PUBLIC PROCUREMENT (CONTD)

• SOUND PP POLICIES AND PRACTICES ARE THUS AMONG
  THE ESSENTIAL ELEMENTS OF GOOD GOVERNANCE
• GOOD PRACTICES REDUCE COSTS AND PRODUCE TIMELY
  RESULTS
• POOR PRACTICES LEAD TO WASTE AND DELAYS AND ARE
  OFTEN THE CAUSE FOR ALLEGATIONS OF CORRUPTION AND
  GOVERNMENT INEFFCIENCY

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KET ELEMENTS OF PUBLIC PROCUREMENT

• CLEAR, COMPREHENSIVE AND TRANSPARENT LEGAL
  FRAMEWORK
• CLEAR CUT FUNCTIONAL RESPONSIBILITIES AND
  ACCOUNTABILITIES FOR PROCUREMENT FUNCTION
• EFFICIENT INSTITUTIONAL FRAMEWORK
• ROBUST MECHANISM FOR ENFORCEMENT OF POLICY, RULES
  AND REGULATIONS
• WELL TRAINED PROCUREMENT STAFF

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ESSENTIALS OF GOOD PUBLIC PROCUREMENT

• ECONOMY BY OPEN COMPETITION
• EFFICIENCY BY EFFECTIVE PROCESSES
• FAIRNESS BY NON-DISCRIMINATION
• TRANSPARENCY BY OPENNESS
• ACCOUNTABILITY BY ADHERENCE TO PROCUREMENT LAW
  OR ACT

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EQUALITY OF OPPORTUNITY IN PUBLIC PROCUREMENT

• MERE COMPLIANCE TO THE INDIAN CONTRACT ACT IS NOT
  ENOUGH IN CASE OF GOVERNMENT CONTRACTS, BUT THEY
  MUST ALSO SATISFY ARTICLE 14 AND 19
• ARTICLE 14 EQUALITY BEFORE LAW- THE STATE SHALL
  NOT DENY TO ANY PERSON EQUALITY BEFORE THE LAW OR
  THE EQUAL PROTECTION OF THE LAWS WITHIN THE
  TERRITORY OF INDIA
• HENCE TO SATISFY ARTICLES 14 19 IN GOVERNMENT
  CONTRACTS THE PROCESS OF PROCUREMENT SHOULD BE
  FAIR REASONABLE, FAIRNESS IN ACTION BEING THE
  BASIC REQUIREMENT

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EQUALITY OF OPPORTUNITY IN PUBLIC PROCUREMENT
(CONTD)

• TAKING GOVT CONTRACTS IS A PROFESSIONAL
  OCCUPATION TO WHICH EVERY ONE HAS A FUNDAMENTAL
  RIGHT
• PP HAS TO BE OPEN FOR ALL WHO ARE ELIGIBLE
• SC HAS HELD TODAY THE GOVERNMENT IN A WELFARE
  STATE IS THE REGULATOR AND DISPENSOR OF SPECIAL
  SERVICES AND PROVIDER OF A LARGE NUMBER OF
  BENEFITS,JOBS,CONTRACTS,LICENSES,QUOTAS, MINERAL
  RIGHTS ETC. THE GOVT POURS FORTH WEALTH,
  MONEY,BENEFITS, SERVICES, CONTRACTS, QUOTAS AND
  LICENSES..

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PROCUREMENT LAW

• TO REGULATE PUBLIC PROCUREMENT OF GOODS,
  CONSTRUCTION AND SERVICES SO AS TO PROMOTE THE
  OBJECTIVES OF
• MAXIMIZING ECONOMY AND EFFICIENCY IN PROCUREMENT
• FOSTERING AND ENCOURAGING PARTICIPATION IN
  PROCUREMENT PROCEEDINGS BY SUPPLIERS AND
  CONTRACTORS, ESPECIALLY WHERE APPROPRIATE,
  PARTICIPATION BY SUPPLIERS AND CONTRACTORS
  REGARDLESS OF NATIONALITY AND THEREBY PROMOTING
  INTERNATIONAL TRADE

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PROCUREMENT LAW (CONTD)

• PROMOTING COMPETITION AMONG SUPPLIERS AND
  CONTRACTORS FOR THE SUPPLY OF THE
  GOODS,CONSTRUCTION OR SERVICES TO BE PROCURED
• PROVIDING FOR THE FAIR AND EQUITABLE TREATMENT OF
  ALL SUPPLIERS AND CONTRACTORS
• PROMOTING THE INTEGRITY OF, AND FAIRNESS AND
  PUBLIC CONFIDENCE IN THE PROCUREMENT PROCESS AND
• ACHIEVING TRANSPARENCY IN THE PROCEDURES RELATING
  TO PROCUREMENT

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VOLUME OF PROCUREMENT

• VOLUME OF PROCUREMENT IS VERY HIGH SO ARE THE
  STAKES
• GOK ANNUAL PROCUREMENT WAS ASSESSED AS ABOUT
  RS.13,000/- CRORES IN 2001
• IRREGULARITIES IN PROCUREMENT, MALPRACTICES/
  CORRUPTIVE PRACTICES IN PROCUREMENT ARE A COMMON
  AUDIT OBJECTION VIGILANCE CASES SOME EVEN LEAD
  TO FALL OF GOVERNMENT

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THE UNCITRAL MODEL PROCUREMENT LAW

• THE UNCITRAL MODEL LAW ON PROCUREMENT OF GOODS,
  CONSTRUCTION AND SERVICES WAS ADOPTED BY THE
  UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE
  LAW (UNCITRAL) AT ITS TWENTY-SEVENTH SESSION THE
  COMMISSION HAS ALSO ISSUED A GUIDE TO ENACTMENT
  OF THE UNCITRAL MODEL LAW ON PROCUREMENT OF
  GOODS. CONSTRUCTION AND SERVICES (A/CN.9/403)

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PROCUREMENT LAW (CONTD)

• MANY COUNTRIES HAVE A PROCUREMENT LAW
• SOME COUNTRIES INCLUDING INDIA HAVE CODES AND
  MANUALS
• HOWEVER THESE ARE ISSUED BY ADMINISTATIVE
  MINISTRIES /DEPARTMENTS AND COULD BE
  CHANGED/REVISED RATHER EASILY MAY LEAAD TO
  INCONSISTENCIES
• THE REVISION/MODIFICATION OF THE LAW/ACT REQUIRES
  THE APPROVAL OF PARLIAMENT/ASSEMBLY WHICH IS
  RATHER TOUGH/DIFFICULT IT WILL ENSURE
  CONSISTENCY

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PROCUREMENT LAW (CONTD)

• IN INDIA PROCUREMENT PROCEDURES ARE CONTAINED IN
  THE GENERAL FINANCIAL RULES (GFR) WHICH HAS BEEN
  REVISED IN 2005
• TAMIL NADU IS THE FIRST STATE IN INDIA WHICH HAS
  ENACTED A PROCUREMENT LAW IT IS NAMED THE TAMIL
  NADU TRANSPARENCY IN TENDERS ACT, 1998 AND RULES
  2000
• KARNATAKA IS THE SECOND STATE IN INDIA WHICH HAS
  ENACTED A PROCUREMENT LAW IT IS NAMED THE
  KARNATAKA TRANSPARENCY IN PUBLIC PROCURMEENT ACT
  1999 AND RULES 2000 KARNATKA HAS ALSO MANDATED
  STANDARD TENDER DOCUMENTS

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PROCUREMENT LAW (CONTD)

• OTHER STATES SUCH AS ANDHRA PRADESH, ORISSA,
  PUNJAB ARE PROPOSING TO ENACT SIMILAR PROCUREMENT
  LAWS

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OTHER LEGISLATIONS THAT AFFECT CONTRACTS

• THE INDIAN CONTRACT ACT, 1872
• WORKMEN COMPENSATION ACT,1923
• THE INDUSTRIAL DISPUTES ACT,1947
• EPF AND MISCELLANEOUS PROVISIONS ACT, 1932
• THE INDIAN PARTNERSHIP ACT, 1923
• THE SALE OF GOODS ACT,1930
• PAYMENT OF WAGES ACT, 1936
• MINIMUM WAGES ACT,1936
• EMPLOYEESS STATE INSURANCE ACT, 1948
• FACTORIES ACT, 1948

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OTHER LEGISLATIONS THAT AFFECT CONTRACTS (CONTD)

• KARNATAKA SALES ACT, 1957
• CONTRACT LABOUR (REGULATION AND ABOLITION) ACT,
  1976
• MATERNITY BENEEFIT ACT, 1961
• CHILD LABOUR (PROHIBITION AND REGULATION ACT,
  1986
• PAYMENT OF GRATUITY ACT,1972
• THE PUBLIC LIABILITY INSURANCE ACT, 1991
• ENVIRONMENTAL (PROTECTION) ACT, 1986
• THE ARBITRATION AND CONCILLIATION ACT, 1996 ETC.