Special Compliance Requirements for Government Contractors
Government contracts, as the name suggests, are those undertaken or signed by state or central governments. They are initiatives signed for various purposes such as construction and maintenance, manpower and staffing, IT-related projects, and so on. Government contract compliance is a constantly evolving challenge
While one of the parties in the contract is the government, the other part is typically an organization that carries out the activities in the contract. They are called contractors.
Contracts in India are of 4 major types:
- Fixed Price Contracts: In these contracts, governments pay their contractors a specified fee. The contractors must now honor the terms of the contract and complete it with the given investment. The price is non-negotiable. However, they can be renegotiated with the help of amending certain clauses in the original contract.
- Cost Reimbursement/ Cost-Plus Contracts: In reimbursement contracts, contractors can keep drawing on a certain amount of money and allowance and reimburse costs up to a specific pre-fixed limit. These contracts are used in projects where some operating costs cannot be accurately measured all the time. However, in cost-plus contracts, the emphasis is more on the quality of the output.
- Indefinite Delivery/ Indefinite Quantity Contracts: These are used to bolster or supplement fixed price and cost-reimbursement contracts. These help in projects getting specific supplies and resources for them to function more effectively. There is a fixed time period that orders supply on a need basis.
- Time and Materials Contracts: In these contracts, investment is made in terms of the actual operational cost as well as hourly wage and materials used.
Why is Contract compliance important?
Government contract compliance must follow certain protocols and regulations in order to conduct business and engage in development. Government Contract Compliance has a lot of elements that must be considered while discussing contract compliance.
To begin with, government contracts directly concern articles 298 (the power to carry out a trade) and article 299. Article 299 has three major stipulations:
- Every contract must be expressed to be made by the President or the Governor (as the case may be)
- Every contract must be executed on behalf of the President or the Governor (as the case may be).
- Every contract must be executed by a person authorized by the President or the Governor (as the case may be).
Failure to comply with article 298 and predominantly, article 299 can lead to serious penalties. There must be a written form of the contract, to begin with. If not in compliance, the contract is null and void. It cannot be enforced either by the government or the individual.
Applying for Government Contracts
Another important aspect for contractors to note is that compliance also includes going through proper channels to register themselves as available contractors. This includes having the necessary documentation to finish the task.
The major steps include:
- Registration at the ministry of corporate affairs
- Reservation under the department of companies
- Registration under the GST (for organizations above Rupees 40L)
- Registration as a contractor under the ministry of housing and urban affairs and the central public works department.
- This includes documents such as income tax clearance certificate, certificate of company registration, a profile of the proprietor, inventory of machinery owned by the company for executing projects, and so on.
To protect assets and investments, some individuals or organizations are government contractor compliance risk services. These include the interpretation of a government as well as the monitoring and elimination of threats pertaining to contract and statutory compliance as well from time to time. This protects the investments of both parties, as well. All these aspects or rather the failure to adapt to change has caused major losses to companies. Organizations would do well to understand the mode of transport you are in.