Home / News / India /  Penalty on small suppliers‘ failure to execute contracts during covid to be returned: Centre

NEW DELHI : In a major relief to small suppliers, the Centre on Monday asked various ministries to refund the performance security, bid security and liquidated damages forfeited or deducted during the COVID-19 pandemic.

The move gives effect to finance minister Nirmala Sitharaman’s announcement on 1 February in her budget speech that in cases of failure by micro, small and medium enterprises (MSMEs) to execute contracts during the Covid period, 95% of the forfeited amount relating to bid or performance security, will be returned to them by the government and state-owned companies. The minister said in her speech that this would provide relief to MSMEs.

“95% of the bid security (Earnest Money Deposit), if any, forfeited from MSME firms in tenders opened between 19 February 2020 and 31 March 2022 shall be refunded," the department of expenditure said in an order.

Also, 95% of the liquidated damages (LD) deducted from such firms shall also be refunded. LD so refunded shall not exceed 95% of the performance security stipulated in the contract.

It added that in case any firm has been debarred only due to default in execution of such contracts, such debarment shall also be revoked, by issuing an appropriate order by the procuring entity.

However, in case a firm has been ignored for placement of any contract due to debarment in the interim period (i.e. date of debarment and the date of revocation under this order), no claim shall be entertained.

According to the finance ministry, no interest shall be paid on such refunded amount. 

“The government has been getting many references from micro, small and medium enterprises (MSMEs) regarding difficulties being faced by them in the last two years due to COVID 19 pandemic. The government had provided certain benefits to the industry (including MSMEs) in government contracts in the past,“ the finance ministry said in the order.

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