A rate contract is an agreement between a purchaser and supplier to supply items at specified prices during the period covered by the contract. No quantities are mentioned, but the contractor is bound to supply orders placed during the contract period at the specified rates. Rate contracts are generally concluded for standard items with annual estimated purchases of Rs. 25 lakhs or more that have stable pricing and are not subject to major market fluctuations. The decision to add or remove items is made by the Standing Review Committee which includes representatives from major procuring departments. Current rate contracts are evaluated based on contractor performance and market conditions to determine if items should remain on contract.

1. RATE CONTRACT
PRAKHAR AMULE (MT14IND016)
MTECH INDUSTRIAL ENGG.
DEPARTMENT OF MECHANICAL ENGG
VNIT,NAGPUR
PRAKHAR AMULE
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2. RATE CONTRACT
 A rate contract is an agreement between the
Purchaser and Supplier to supply items at
specified prices during the period covered by the
contract.
 The rate contract is in the nature of a standing
offer from the supplier firm.
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3.  No quantities are mentioned in the contract.
 The contractor is bound to execute any supply
order which may be placed upon him during the
period of the contract at the rates specified.
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4.  A Order can be placed upto the last date of the
rate contract but should not be placed after
expiry of the rate contract.
 DGS&D can legally cancel the rate contract at any
time during the period of the contract.
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5. Types of contract
 Lump-sum contract
 Item rate contract
 Cost plus contract
 Cost plus percentage rate contract
 Cost plus fixed free contract
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6. Lump-Sum Contract
 Contract under which a principal (customer or
owner) agrees to pay a contractor a specified
amount for completing work without requiring a
cost breakdown.
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7. Cost-Plus Contract
 A cost-plus contract, also termed a cost
reimbursement contract, is a contract where a
contractor is paid for all of its allowed expenses
to a set limit plus additional payment to allow for
a profit.
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8. Items for which rate contract to be
Concluded
 Items of standard types preferably having BIS
specifications.
 Items which are identified as common user items
and are needed on recurring basis.
 Items for which prices are likely to be stable and
not subject to considerable market fluctuations.
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9.  Items with an estimated annual drawals of Rs.25
lakhs or more.
 Rate Contract may not be concluded for the
scarce/critical/short supply items.
 Items of low value and which are required in
small quantities, rate contracts may not be
convenient to operate.
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10. AUTHORY TO BRING/DELETE AN ITEM
ON RATECONTRACT
 The decision to bring or delete an item on / from
rate contract will be taken by the Standing
Review Committee (SRC) under the Chairmanship
of DG(S&D) except for those items which were
earlier brought on rate contract or deleted from
the rate contract
 The Committee associates representatives from
major indenting departments like Defence,
Railways, Home Affairs, Health
Telecommunications, State Governments and
Trade organizations.
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11.  The suggestions to bring new items on rate
contract will be sent to /received by the Member-
Secretary who will place them before the sub-
committee for consideration.
 If the item is considered worthy by the Sub-
Committee, it will be allotted to the Purchase
Directorate.
 The Purchase Directorate will collect the data
related to the suggested item with the criteria
prescribed for bringing the item on rate contract.
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12.  Purchase Directorate would interact with Quality
Assurance Wing to finalize the specification for
the item suggested.
 If there exists slight divergence standard, efforts
should be made to secure modification and
standardization, such itemss should be
recommended to be purchased on the basis of
rate contracts.
 Sub-Committee may meet once in a month to
take a view on the items already projected and
submit their report to DG.
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13. EVALUATION OF CURRENT RATE CONTRACT
 Based on the reports submitted by rate contract
holders, Purchase Directorates should analyse
carefully whether performance is satisfactory or
not, any difficulties faced by the firm.
 In case, on such examination, it is observed that
performance against Rate Contracts is not
satisfactory and is primarily due to non-
availability which are in short supply and are
scarce/critical, the desirability of continuing the
item on rate contract should be considered.
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14.  If the performance have been satisfactory and did
not pose any problems rate contract for the item
may continue.
 Items in which there has been fluctuations in the
price of raw-material can be taken out of the
Rate contract.
 Items already available on rate contract may be
considered for deletion if annual drawal of the
item in the past three consecutive years fall short
of Rs.25 lakhs in each year.
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15. PRICE
 If it is decided to allow price variation relating to
raw-material, it is required to indicate in the
tender enquiry the base price on which the firm
should offer their prices.
 Where price variation is to be allowed, the
approval of Department of Supply should be
taken.
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16. EXPECTED LEVEL OF PERFORMANCE OF CURRENT RATE
CONTRACT HOLDERS
 The past performance of a firm will be one of the
consideration in awarding fresh rate contract to
the firm.
 The cut off date is to be indicated in the tender
enquiry allowing a minimum of 21 days prior to
the tender opening date. This date should be
either the 15 or the last date of the month
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17. PAYMENT TERMS
 As per DGS&D the payment terms are 98% on
proof of inspection and dispatch and balance 2%
on receipt of items by consignee.
 At the time of planning any change required in
the standard terms of payment should be
discussed for consideration and approval of the
competent authority.
 Any change in payment terms as decided with the
approval of competent authority has to be clearly
indicated in the enquiry.
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18. RATE CONTRACT PERIOD
 Normally the period of rate contract is limited to
one year, but in special cases a shorter or longer
period may be considered.
 Termination period of rate contracts should be
fixed in such a way as to ensure that budgetary
levies would not affect the price and thereby
frustrate the contracts.
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19. CONSIDERATION OF LATE TENDERS IN RATE
CONTRACT ENQUIRY
 Late tenders received against rate contract
enquiry may be considered subject to following :
 an item where there is no common specification
 where there is no competitive bidding
 where the rate contracts are concluded on the basis of discount
given on the Net Dealer Prices
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20.  Rate contract with such late tendering firm would
not be concluded until:
 At least four months of the existing rate contract period has
expired in the case of one year rate contracts.
 A period of at least six months has expired in the case of two years
rate contracts.
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21. CONSIDERATION OF TENDERS FROM EXISTING RATE
CONTRACT HOLDERS QUOTING PRICES LOWER THAN THEIR
EXISTING RATE CONTRACT RATES
 If lower rates are quoted by the existing rate contract
holders themselves for the fresh rate contract, they may
be asked if they are prepared to reduce the rates against
the existing rate contracts.
 existing rate contract holders do not reduce the prices
against the current rate contracts and quotations have
been received at lower rates from new firms then
finalization of fresh rate contracts can be done.
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22. Past performance of Current RC holders
 The proposal should clearly bring out the performance of
previous rate contract holding firms with a load-chart and
their level of achievement with respect to performance
criteria indicated in the enquiry.
 No new rate contract should be placed with firms having
backlog which is likely to continue for major portion of
the year.
 If a contractor does not have the current RC, the
performance criteria against the earlier two immediately
preceding RC should be considered
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23.  It is not necessary to go into the performance of
the contracts earlier than three years.
 The firm who hold the current and preceding two
Rate Contracts should satisfy the performance
criteria. Firms not satisfying the criteria
mentioned above may not qualify for award of RC
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24. THANK YOU
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25. Questions
Q 1: What is Rate Contract?
Q 2: What are the items for which Rate Contract is concluded?
Q 3: What are the Authority to bring or delete an item on rate contract?
Q 4: How to evaluate current rate Contract?
Q 5: What are the payments terms and rate contract periods?
Q 6: What are the consideration of tenders from existing rate contract
holder quoting price lower than their existing rate contract?
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