India’s defence industry gets relief, govt gives additional time to supply contracted items

By: |
June 12, 2020 7:37 PM

According to an official statement released by the MoD, the delivery period for all existing capital acquisition contracts with the Indian vendors has been extended by four months.

This has been done due to the disruption in the supply chain, caused by the global pandemic of COVID-19.

Providing a significant relief to the Indian vendors reeling under the impact of the Covid-19 pandemic, the Ministry of Defence (MoD) has given them an additional four months to supply the contracted items. The extended period will run from 25th March to 24th July 2020.

What has the Government decided?

According to an official statement released by the MoD, the delivery period for all existing capital acquisition contracts with the Indian vendors has been extended by four months. This has been done due to the disruption in the supply chain, caused by the global pandemic of COVID-19.

Announcing this, defence minister Rajnath Singh on Friday said that “an order to this effect has been issued by the acquisition wing of the Ministry and the Force Majeure shall be applicable for a period of four months that 25th March 2020 to 24th July 2020″.

As per the MoD, “The duration of Force Majeure will be excluded while calculating the delay in delivery of contracted equipment/ service and imposition of Liquidated Damages (LD) charges.”

As far as the foreign vendors are concerned they can approach the MoD which may consider cases on the basis of the situation prevailing in their respective countries.

What does this mean? Experts’ Views

According to Amit Cowshish, former Financial Advisor (Acquisition), Ministry of Defence, “In effect, it implies that the vendors will not have to pay liquidated damages if they manage to deliver the contracted goods within four months beyond the contractually mandated date of delivery.”

“This relief has been given under the Force Majeure clause, which is one of the standard clauses in all defence contracts. This clause can be invoked by either of the contracting parties in the event of non-fulfilment, or delayed fulfilment, of contractual obligations if it is attributable to reasons beyond their control.

Calamities like fires, floods, natural disasters, or other acts such as war, turmoil, strikes, sabotage, and explosions are acknowledged as force majeure, but there was some apprehension whether the current pandemic also falls in this category,” Cowshish says.

While the Ministry of Finance had put these apprehensions at rest by clarifying on February 19, 2020, that the Covid-19 pandemic will qualify as force majeure, it is only now that MoD has followed suit.

“In fact, MoD has done one better by announcing that the extension of the delivery period will not require any formal amendment to the individual contracts. This will save the vendors the long wait such amendments normally entail.”

As for the foreign vendors, they will be required to approach MoD with a case for the extension of the delivery period based on the situation prevailing in their countries. Hopefully, such requests will be entertained with compassion.

“It is quite apparent, though, that MoD would be willing to consider a delay in the delivery of contracted items that is attributable to the disruption caused by the pandemic as force majeure,” Cowshish concludes.

Air Marshal Nirdosh Tyagi (retd), former Deputy Chief of Air Staff, says “As per DPP, a vendor has to pay Liquidated Damages (LD) for any delay in supply of contracted items. LD could be as high as 10% of the contracted value of such items, depending on the period of delay. However, there is a provision to waive contractual obligations, including LD, should any Force Majeure circumstances arise.”

“Force Majeure implies an event or effect that can neither be anticipated nor controlled. Natural disasters, floods, fire and other such acts, not brought about by the concerned party, are considered Force Majeure events. COVID-19 has impacted all aspects of the economy, including defence manufacturing. MoD has taken timely and very desirable action in declaring Force Majeure for a three month period for the Indian vendors. This would obviate the need for each vendor to take up his case individually.” The former deputy chief of air staff says.

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