Govt extends deadline to fulfill contractual obligations by up to 6 months

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The Finance Ministry has extended the deadline for fulfillment of contractual obligations of all government projects, including public-private partnerships (PPP), which were due for completion on or after February 20, by up to six months in view of COVID-19 crisis.

The Expenditure Department, under the ministry, had in February said that COVID-19 outbreak in China would be considered a 'force majeure' situation, which refers to extraordinary events and circumstances beyond human control or a natural calamity, giving relief to companies which have contracts with the central government.

In a recent office memorandum, the department said subsequent to this, further disruptions have affected transportation, manufacturing and distribution of goods and services in the country.

"Limitations placed on the movement of men and material by the Ministry of Home Affairs.... and the respective state and UT governments from time to time have severely impaired the fulfillment of contractual obligations for supply of goods, works and consultancy services and affected the volume of vehicular traffic," it said.

In view of the restrictions placed on the movement of goods and services and manpower on account of the lockdown situation prevailing overseas and in the country it may not be possible for parties to the contract to fulfil contractual obligations, the department said, adding in respect of public-private partnership (PPP) concession contracts, period of the contract may have become unremunerative.

"Therefore after fulfilling due procedure and where-ever applicable, parties to the contract may invoke FMC (force majeure clause) for all construction/works contracts, goods, services contracts and PPP contracts with Government Agencies and in such event, date for completion of contractual obligations which had to be completed on or after February 20, 2020, shall stand extended for a period not less than three months and not more than six months without imposition of any cost or penalty on the contractor/ concessionaire. Concession period in PPP contracts ending on or after Fberuary 20, 2020 shall be extended by not less than three and not more than six months," it said.

It further said that the period of extension (three and six months) may be decided based on the specific circumstances of the case and the period for which performance was affected by the force majeure events.

"Invocation of FMC would be held valid only in a situation where the parties to the contract were not in default of a contractual obligations as on February 19, 2020.

"The invocation of FMC does not absolve all non-performances of a party to the contract, but only in respect of such non-performance as is attributable to a lockdown situation or restrictions imposed under any Act or executive order of the Government/s on account of COVID-19 global pandemic," the department added.

COVID-19 has led to a nationwide lockdown beginning March 25, which has now got extended till May 31.