India relaxes performance guarantee rules for defence contracts

Photo: Rajnath Singh, India’s defence minister, inaugurating the additional assembly line for HAL’s Tejas jets.

New Delhi: In a major relief to COVID-hit industry, India has relaxed the Performance Guarantee requirement for defence contracts to just three per cent of contract value from the existing five per cent to 10 per cent, and this tweaked rule will apply equally to both Indian and foreign contractors.

This relaxation will apply under these circumstances:

(a) PWBG would be reduced to three per cent from existing five per cent to 10 per cent of the value of the contract for all existing contracts by issuing letters to the vendors, except the contracts under dispute wherein arbitration/court proceedings have been already started or are contemplated.

(b) All eligible contracts may be amended to give effect to this order

(c) ln all contracts where PWBG has been reduced to three per cent in view of above stipulations, the reduced percentage of PWBG shall continue for the entire duration of the contract and there will be no subsequent increase of PWBG even beyond Dec. 31, 2021.

(d) All Request for Proposals (RFPs) issued and contracts concluded from Nov. 12, 2020 till Dec. 31, 2021will have the provision of reduced PWBG of three per cent of the value of the contract. In case of RFPs issued after Nov. 12, 2020 with a five per cent to 10 per cent Performance Guarantee, corrigendum will be issued for reducing it to three per cent

(e) All RFPs issuing authorities and post-contract management authorities will ensure that all vendors with respect to Capital Acquisition cases are informed about the above.

(f) However, in FTP/Emergency cases, the provisions relating to PWBG in Defence Procurement Procedure/Defence Acquisition Procedure will be applicable.

India’s Minister of Defence Rajnath Singh had approved this amendment in the performance security rule on Jan. 6, 2021 and the order released on Jan. 21, 2021.

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