401.    General.—The rules in this chapter apply only to contracts i.e. agreements enforceable by law, which relate to the execution of works of constructions, repair or maintenance or to the conveyance of supply of materials. The rules do not apply to petty purchases of Rs. 1 Lakh and under, in respect of which General Manager is competent to frame such instructions, as he may consider necessary.

Note: - (i) The term "General Manager" used in these rules is deemed to mean besides the General Managers of Railways, D.G., RDSO, Chief Administrative Officers and Engineer-in-Chief in independent charge, directly under the Railway Board.

(ii) The terms "Financial Adviser" is deemed to mean the Accounts Officer.

(Authority Board's letter No. 2008/RS(G)/779/9 dated 06-02-2009).acs no.23 page no. 72

 402.     The following fundamental principles are enumerated for the guidance of authorities who have to enter into contracts or agreements.

 (i) The terms of a contract must be precise and definite and there must be no room for ambiguity or mis-construction therein.

 (ii) As far as possible legal and financial advice should be taken in the drafting of contracts before they ace finally entered into.

 (iii) Standard forms of contracts should be adopted, wherever possible, the terms to be subject to adequate prior scrutiny.

 (iv) The terms of contract once entered into should not be materially varied except in consultation with the competent financial authority.

 (v) No contract involving an uncertain or indefinite liability or any condition or an unusual character should be entered into without the previous consent of the competent financial authority.

 (vi) Whenever practicable and advantageous, contracts should be placed only after tenders have been openly invited and in cases where the lowest tender is not accepted, reasons should be recorded.

 (vii) In selecting the tender to be accepted, the-financial status of the individuals and firms tendering must be taken into consideration in addition to all other relevant factors.

 (viii) Even in cases where a formal written contract is not made, no order for supplies & c, should be placed without at the least a written agreement as to price.

 (ix) Provision must be made in contracts for safeguarding governments property entrusted to a contractor.

 (x) In entering into long term agreements or contracts considerations should be given to the desirability of providing for the railway unconditional power to cancel the agreement at any time after the expiry of six months' notice to that effect.

 (xi) The Auditor-General and under his direction, other audit authorities have power to examine contracts and to bring before the Public Accounts Committee any cases where competitive tenders have not been sought, or where high tenders have been accepted, or where other irregularities in procedure have come to light.

 403.     "Lump Sum "Contracts.—The Lump Sum Contract is a contract under which the contractor engages to carry out a work or effect supply as specified and within a given period for a fixed total sum; his receipt of this sum being dependent on his completing the work or supply to specification and time, irrespective of the actual quantities and kind of work done or materials supplied in achieving his result.

404. In the case of such contracts a scale of rates or prices may be agreed upon by which enhancement of or reduction from the lump sum may be regulated in the event of any departures from the work or supply as specified being made subsequently under the orders of competent authority; or by which reduction may be made, at the discretion of competent authority for failure on the contractor's part to conform to specification.

405.    Schedule Contracts.—The Schedule Contract is a contract under which the contractor engages to carry out a work or effect supply as specified and within a given period at fixed unit rates or prices for each of the various items comprising such work or supply, the sum he is to receive depending on the actual quantities and kinds or work done or materials supplied in completing the work or supply to specification and time. It is not repugnant to the above definition to show in such contracts the approximate amount of the contract, based on approximate quantities and the fixed unit rates.

406.    Piece-Work Contracts.— This means a contract under which only unit rates or prices for various kinds of work or materials are agreed upon, without reference either to the total quantity of work to be done or material supplied; or to the quantity of work to be done or material supplied within a given period.

Note.—(i)    Agreeable to the above definition of a price work contract:—

(a)   The Railway may indicate its intention as to the maximum value of the orders it is likely to place; but the contractor cannot claim to be given an order for more than one unit of work or supply.

 (b)   After the contract is executed, specific orders for work or supply may be placed against it.

 (c)   The rate of progress may not be specified; but if it is not satisfactory the contract can be terminated.

 (ii)    The "Lump Sum", "Schedule" and "Piece-work" forms of contract are primarily intended for application to "Works" contracts.

407.    Rate Contracts.—The Rate Contract is a contract under which, during the period of its currency, the contractor engages to supply materials on demand, irrespective of quantity, at fixed unit rates or prices, within a given period of the receipt of such demand.

408.     Running Contracts.—The Running Contract is one under which, during the period of its currency the contractor engages to supply, and the other party to the contract to take, a specified quantity (with a percentage tolerance either way) of materials, as and when ordered, at fixed unit rates or prices, within a given period of the receipt of such order.

Note.—The "Rate" and "Running" forms of contract are primarily intended for application to "Stores" contracts.

409.     " Fixed Quantity" Contract.—This means a contract for a definite quantity of materials to be delivered in one or more instalments, delivery of each instalment being completed by a definite date.

410. Competency of Authorities to Execute Contracts .— On behalf of the President of India contracts may be executed only by or with the approval of the authority empowered so to contract. Such powers are restricted as to "class" and as to "amount". The competence of authorities, as to "Class" is determined by the President of India and is specified in Appendix II to this code. The powers so entrusted may not be delegated.

411.    The competence of authorities, as to "amount" is determined by the financial powers of each authority in this respect. The powers so entrusted may be delegated subject to any restrictions which may be imposed by the Railway Board.

412.    Restrictions as to "amount" shall not prevent an authority from giving out to different contractors a number of contracts relating to one work, even though the sum of such contracts may exceed the pecuniary limits of its powers. 

413.    No authority shall execute a contract:— 

(i) which is beyond its powers as to either "class " or "amount".,

(ii) which relates to a work, the incurrence of expenditure or liability on which is not authorised under current rules and orders regarding control of expenditure.,

(iii) which involves, in respect of the work to which it relate, an excess over the estimate greater than is within such authority's competence to sanction;

(iv) any provision of which contravenes any standing rule or order of higher authority ; provided always that an authority may sign any contract within its powers as to "class", with the approval of the authority competent to execute it.

Note.— In cases where materials are supplied by the railway to the contractor for the execution of a work, the amount of the contract shall for the purpose of determining the authority competent to execute it, be taken to be the net amount to be paid to the contractor, exclusive of the cost or value of the material so supplied.

414.    On behalf of the contractor the signature of only such person or persons as are competent to bind him legally shall be accepted on a contract.

415.      Contract Documents.—Every contract shall be so framed as to place beyond all reasonable doubt all the matters upon which parties thereto intended to agree, and the matters to be agreed upon shall include in detail, the following :—

(a)   What the contractor is to do, when, where and to whose satisfaction it is to be done ;

(b)   What Government is to do ; and on what terms .

(c)   What payment is to be made; what it is to cover, to whom it is to be made; and the method and basis of making it.

(d)   The responsibility of the contractor in respect of adequate supervision, care of Government property, and the protection of outside interests and those of his staff and workmen.

(e)   The terms on which variations and modifications (under paragraphs 446 to 447), if any are to be permitted; the authority competent to order and to assess them, and the occasion and basis of such assessment.

(f)   The measures to be adopted in the event of a breach of the contract by either party thereto, and the method of and grounds for the determination thereof.

(g)   The method of settling disputes.

416.    The documents forming integral part of a contract are :

(i) the tender comprising of Instructions to Tenderers, Conditions of Contract, Standard or Spccial, The Specification, Standard or Special, (and any plans/ drawings as necessary), the Schedule of items, quantities and rates, Agreement Form and Tender form, (if any).

 (ii) Contractors offer.

 75 (iii) Advance acceptances of tender, (if any).

 (iv) Formal Acceptances of Tender.

 (v) Any document making any change or deviation in any of the terms as embodied in the Advance Acceptance of Tender or the formal Acceptance of Tender.

 Note.—"Rates" are included in the schedule of items only in case of "work" contracts, where the tenderers are instructed to quote a percentage above or below the schedule rates at which they offer to carry out the work.

417.    Conditions of Contract.—The conditions of contract may be either Standard or Special. The Standard Conditions of contract including special conditions prescribed by the Railway Board are reproduced in Appendix III to this code.

418.    Standard Conditions are preferably embodied in all contracts to which they are applicable. In the event of such conditions proving defective in any way, it will be the duty of the General Manager to report the fact to the Railway Board, if such conditions were prescribed by them, and in all other cases to arrange, in consultation with his Legal and Financial Advisors, to amend or amplify them suitably.

419.    Any unusual Conditions of Contract should, before they are imposed, be approved by the General Manager, acting in consultation with this Legal and Financial Advisor; or, if the contract to which they relate is beyond his powers to execute, by the Railway Board.

Note.—These powers shall be exercised by the Controller of Stores to the extent delegated to him by the Rly. Board.

420.    The interpretation to be placed on the word "unusual" is left to the General Manager who will use his discretion both in issuing instructions as to the cases to be submitted to him and also in deciding which cases should be referred to the Railway Board.

421.    The Conditions of Contract adopted, should take account of the Purchase Policy Rules (Chapter III) and the considerations in paragraphs 422 to 428.

422.    For a contract to be legal, there must be "lawful consideration" for performance. Such "consideration" may take a positive form (i.e., an  agreement to order a certain quantity of work or materials) or a negative form (i.e. an agreement not to order certain work or materials from any one but the contractor). The negative form of "consideration" may advantageously be employed in cases of the supply of materials of a perishable nature ; or which it is not necessary store; or for the requirements of which it is not possible to estimate; or where a contractor offer to carry out all work on a district at a fixed percentage below Schedule Rates.

423.    Time should ordinarily be "of the essence" of the contract and it should be specifically so stated. It may in some cases be found advisable to avoid "penalty clauses" by lowering the basic rate and providing for an enhanced rate, which would bring it up to standard, if the contract is completed by the time specified. A penalty clause of any nature is, in any case, pre-eminently a matter on which legal advice should be obtained.

424.    Control of material issued to the contractor.—In contracts involving use of Railway materials, strict control should be exercised over the proper utilisation and accounting of the materials issued to the contractors cither free or on payment. For this purpose following details should be incorporated in the contract:-

(i) Particulars of raw materials to be supplied and the terms on which they are to be supplied.

(ii) Whether scrap left on completion of the contract will be the property of the railway and if so, the quantity thereof.

(iii) Standard estimate of each type of raw material required per unit of finished goods and total quantity of raw materials to be supplied.

(iv) The rates and other terms applicable for the recovery of the materials.

425.    Where tools plant, patterns or other railway property are lent to a contractor for the performance of his contract, the term of such loan should clearly be specified. In order to safeguard railway property adequately it is desirable that in addition to providing that any damage or deterioration is made good, a provision should exist that the contractor is responsible for "loss or destruction". Under the Law of Bailment, the contractor, in the absence of any special contract is "not responsible" for loss, destruction, or deterioration, if he has taken the amount of care that a man of ordinary prudence, would under similar circumstances take of his goods".

426.     In Lum Sum Contracts and Contracts for Machinery and Plant, it should, where feasible, be made a condition that the cost of all repairs necessary, until the work or machinery is finally accepted and for a specified period thereafter, should be borne by the contractor.

427.  Special conditions should not be taken on to Standard Conditions until the effect of doing so has been carefully examined and consequential changes carried out.

428.    One of the conditions should be that any gift or offer of illegal gratification made by the contractor or others on his behalf, renders the contract void.

429.    Specifications.— Stores should be purchased to specification whenever possible rather than a sample. If Indian Standards accepted by the Railway Board for adoption on the Railway exist, these should be used, failing which Indian Railway Standard Specification/D.G.S.&D specifications should be specified. Where none of these specifications exist, the British Standards Institution Specifications, DIN or ASTM specifications should be used. In the absence of any standard specification, local specifications should be prepared. For special plant and materials specifications should be prepared by or in consultation with the consuming branch. If further technical advice is required reference should be made to the Research Design and Standards Organization of the Railway Board.

Note.—Specification should not be altered after opening of tenders unless the alteration is minor and of no financial consequence. Where specifications in a tenders have under gone a major change before the tenders are finalised, fresh tenders should be invited. Where, in urgent cases, recourse to retendering is not practicable, negotiation may be held with all tenderers who quoted against the original tender, after obtaining sanction of competent authority.

430.    Where qualities which are difficult to specify have to be defined, such as "Finish", a reference may be made to standard samples and in all such cases it should be made clear that sample is supplementary to and docs not supersede the specification or drawing. Intending tenderers should be given adequate facilities to inspect or obtain such standard samples. They should be informed at the same time that notwithstanding any defect in the sample, the supplies will be required to conform fully to any specification or drawings which may exist.

Tenderers should normally not be asked to submit samples in cases where definite specifications, drawings, or purchaser's scaled samples exist, unless the nature of stores is such that it not covered adequately by specification drawings or the store is of such a difficult nature (as proved by experience) as to necessitate calling of samples.

Where it has been decided to make a purchase calling samples from tenderers, the samples should invariably accompany the tender failing which the tender should be summarily rejected.

431.     When there are two or more alternatives given in a specification, it should be definitely stated what alternative is to be followed.

431-A. Warranty.—-A warranty clause should be included in all cases where defects come to light only when the stores are put to use and not before by visual or even laboratory inspection.

431-B. Marking of Railway Materials.—In order to prevent pilferage as well as misuse of Railway Stores, the system of marking of Railway materials with distinguishing marks in as large a measure as possible, should be adopted.

432.     Rates.—All rates should be entered in a contract in words as well as in figures and what they are to cover should be clearly stated in the contract.

433.     Subject to any general or specific order at the time being in force, the authority empowered to execute a contract is competent to decide on the rates there fore provided that where such rates are in excess of the Market, or Standard Rates of the Railway, or rates quoted by railway workshops for the manufacture of the stores in question, the authority should record the reasons for adopting the higher rates.

434.     Quantities.—All quantities should be entered in a contract in words as well as in figures.

435.    Nomenclature.—As far as practicable, standard forms of nomenclature or description should be employed in a contract, the terminology should be such in all cases as to show beyond all reasonable doubt that exactly is required.

435A.   Delivery.—A contract for sale of goods may be :—

(a) an entire contract

(b) a severable contract

The fact that a contract for delivery in instalments is divisible in performance, does not necessarily make it a severable contract as would be evident from following delivery stipulations which illustrate these two types of contracts:—

(i) An entire contract.—"Delivery to commence after 45 days from the date of receipt of the con tract and to be completed @ 20,000 units per month i.e. by 30 th April, 1985 or earlier."

(ii) A severable contract.—Delivery date—7410 units 15-2-1986, 8510 units by 31-3-1986.

The delivery terms provided in a contract should therefore, be worded carefully and as for as possible specific date/dates should be indicated by which supplies should be completed by the contractor, so as to allow no room for ambiguity.

436.    Agreement Forms.—The Form of Agreement may either be the Tender Form itself or may be provided separarely. The conditions of contract, Specifications, etc., may be embodied in the Agreement Form or may be an annexure thereto; or may, provided they are readily accessible to the contractor, be merely referred to therein. 

437.     Competency of Authorities to vary Contracts.—The power to vary the terms of a contract lies only with the actual parties thereto. The contractor, and his sureties, if any, must therefore be consenting parties to all variations, which should be the subject of a Subsidiary Agreement stating what is to be varied and what will remain unchanged in the original contract. The drafting of this agreement should be the subject of very careful scrutiny, to ensure that the conditions, specifications, etc., of the main contract are adequate for and applicable to the variation, or that the latter is made self-sufficient in these respects. Such Subsidiary Agreements should be regarded as fresh contracts and entered into before effect is given to the variations. 

438.    The powers of authorities to effect variations on behalf of the President of India are governed by the rules in paragraphs 439 to 445. The reasons and justifications for any variation in the terms of a contract should be invariably recorded in writing.

439.    (a)   Variation of Indian Railways Standard Conditions of Contract.—These may be varied only with the sanction of the General Manager, in exceptional cases within his powers of placing contracts, in consultation with his Financial Adviser and after taking legal advice, if necessary, these may be varied with the sanction of the authority that approved the original contract acting in consultation with his Financial Adviser and after taking legal advice, if necessary.

The Controller of Stores may also waive operation of clauses relating to 'Liquidated damages', 'Risk Purchases' and 'Arbitration' appearing in the IRS Conditions of contract as a standing measure on the Railways/P. Units in respect of contracts valued up to Rs. 1 lakh at the post contract stage in order to avoid disproportionate administrative expenditure in small recoveries. 

(b)   All other variations including minor relaxation in specifications and drawings .— 

These may be varied with the sanction of the authority that approved the original contract acting in consultation with his Financial Adviser and after taking legal advice, if necessary. 

440.     Variation of the rates   of  items.—Contracts in which a price variation clause is included, the rates may be varied by the authority which approved the original contract with the concurrence of his Financial Adviser.   If the total value of the contract after allowing for the variation is beyond the powers of the authority which approved the original contract, the sanction of the higher authority within whose competence as to amount it lies, should be obtained. 

441.     Variation of Quantities of any item.—These may be varied by the authority which approved the original contract to the extent deemed necessary provided that the Indian Railway Code Rules relating to control over expenditure are not contravened thereby, and provided also that the total value of the amended Contract shall not exceed the powers of the authority that approved the original. 

Where materials are required during a contract period in excess of the quantities contracted for, and such excess is not sufficiently large to justify the invitation of fresh tenders, there is no objection to the quantities under the existing contract being increased suitably. Effort should, however, be made to secure more favourable terms for the increased quantity. 

Note .—Depot Officers/ Inspecting Officer / District Officers of the consuming department are authorised to accept deliveries short or in excess up to 5% of the total value of the contract or Rs.1 lakh  whichever be less, provided as a result thereof the normal powers of purchase of the Controller of stores are not exceeded. No formal amendment of contract w ill be necessary in such cases and also in cases (other than those falling under Para. 711-S) where value of supplies short or in excess does not exceed Rs. 100/- irrespective of the %age involved. 

(Authority: Railway Board’s letter No. 98/RS(G)/779/10(CS) (3/03)dated 25.02.2003) --acs no.14 page no.78

442.    Repeat Orders.—Where materials are required during a contract period in excess of the quantities contracted for, and such excess is not sufficiently large to justify the invitation of fresh tenders there is no objection to the quantities outstanding under the existing contract, if any, being increased suitably, provided that as a result of negotiations, more favourable terms are secured for the purchase than would have been possible by the invitation of fresh tenders. 

443.    No repeat orders are ordinarily to be placed on previously accepted rates obtained on Limited or Single tenders. 

444.    Variation of the items.—These may be varied at discretion by the authorities which approved the original contract to the following extent, namely ; existing items may be deleted or additional Items inserted at rates, which, agreeable to any general or specific orders at the time being inforce, may be decided by the authority making the variation ; subject only to the two provisions of the Rule in sub-paragraph (441) above. 

445.    Extensions of delivery dates.—No correspondence should be entered into with the contractor after expiry of the contract delivery period, which has the effect of keeping the contract alive. Ordinarily no extension of delivery date should be granted unless it is specifically asked for by the contractor. When asked for, the extension may be sanctioned at the discretion of the competent authority (which signed the original contract) provided :—

(a)   that the rate in the contract was not accepted ignoring lower tenders in consideration of the date of delivery ;

(b)   that he is satisfied that the delay will not cause loss or damage, or in case of special purchases, the indenting party certifies that no loss on account of late delivery would be sustained; and  

(c)   that in any case which does not satisfy any or both of the above conditions, such sanction shall be given only in consultation with his financial Adviser and after taking legal advice, if necessary.

 Note.—(1) In case of severable contracts extention in delivery period will be necessary for each instalment separately. 

(2) Unless other wise specified in a contract, the Depart officers/Inspecting Officers/ Consignees may at their discretion, accept delayed supplies of indigenous or imported stores with in the time limit specified below: - 


Time Limit


Contracts valued up to Rs. 3 Lakh       

6 months



Contracts valued over Rs. 3 Lakh but not   exceeding Rs. 6 Lakh provided the initial delivery period does not exceed 6 months.


21 days

The relaxation will, however, not apply to: -

(i)      contracts where higher prices have been paid for earlier delivery.

(ii)     contracts for supply of stores subject to severe market fluctuations.

(iii)    contracts in which provision is made for recovery of pre-estimated damages.  

(iv)   contracts placed against urgent, operational express and Works Programme indents.

(Authority Board's letter No. 2008/RS(G)/779/9 dated 0 6-02-2009) –acs no. 24 page no. 79

446.    Modifications.— Modification of Conditions, Specifications, Quantities, Rates, etc., for which provision has been made, either expressly or by implication, in the contract itself shall not be deemed to constitute a variation thereof provided that they are carried out only to the extent, and by or by order of the authority, specified therein. The reasons and justification for any modifications in the terms of a contract shall be invariably recorded in writing.

447.     Such modifications are, however, subject to the proviso that if, as a result thereof, the amount of the contract exceeds' the powers of the authority with whose approval it was executed, the sanction of the authority within whose competence as to amount it is, shall be obtained. They are also subject to the Indian Railway Code Rules relating to Control over Expenditure. 

448.    Security.—Security where necessary, shall, except under general or special orders from the Railway Board, be taken for the due fulfilment of a contract.

Note .—Security deposit need not be taken from other Railways, Government Departments, Small Scale Industrial Units recognised by the National Small Scale Industries Corporation and firms borne on Railway's list of approved suppliers for items for which they are registered. Security Deposit also need not be taken from firms approved by RDSO, DLW, CLW, ICF and CORE in respect of the items for which they are registered with them.

(Authority:- Board's letter No. 88/RS(G)/779/36 dated 03.06.1996.)--acs no. 5 page no.79.

449. The security may be :—


Government securities at 5 per cent below the market value.


Deposits Receipts, Pay Orders, Demand Drafts & Guarantee Bonds of State Bank of India, or any of the Nationalised Banks or any Scheduled Commercial Bank.


Bond of Indian Railways Finance Corporation and KRCL Bond


A deposit in Post Office Saving Bank


Deposits in National saving Certificates,


A percentage deduction, ordinarily 10% from periodic payments made on account of work done or supply made.

            (Authority Board's letter No. 2008/RS(G)/779/9 dated 0 6-02-2009).acs no. 25 page no. 79

450. General.— Where the rules in this Chapter call for a consultation between the General Manager and his Financial Adviser and their views are at variance, a reference should be made to the Railway Board.

451.    Before any legal proceedings arising out of contracts are entered upon, the sanction of the General Manager acting in consultation with his Legal and Financial Advisers, should be obtained.

452.     It is the duty of all authorities concerned with the execution or carrying out of contracts to see that the terms of such contracts are strictly enforced and that nothing is done by them that would tend to nullify or vitiate a contract.

453.    Where the terms of contract expressly admit of waiver, such right may be exercised only by the authority designated and for adequate reasons, which should be placed on record. In the absence of such provision, non-enforcement of a Condition of Contract constitutes a "variation", thereof and should be dealt with as required by paragraphs 437 to 445.

454.    Stamp Duty.— Contracts are exempt from stamp duty, in cases where Government (as opposed to the contractor) would, but for this exemption, be liable to pay such duty.

455.    Execution of Contract prior to commencement of works or supplies.—

(i) No contractor should be permitted to commence work or supply materials until the relevant contract has been signed by the parties competent to do so.

(ii) Exceptions to this rule are permissible only in cases of extreme urgency such as works or supplies necessary to safeguard life or property or to repair damage to the track caused by flood, accident or other unforeseen contingency, so as to restore and maintain through communication. Even in such cases, if circumstances permit some form of written contract, or atleast an agreed statement of rates to be paid, should be prepared before commencement of works or supplies, the intention being that the conditions, specifications, etc., with sufficient items and rates to carry on with, should be agreed upon beforehand.

(iii) In other exceptional but less emergent cases, in which the commencement of work or supply cannot be postponed till the preparation and sanction of the contract documents, prior consultation with the Financial Adviser shall be necessary. 

(iv) In all cases of departure from Sub-rule (i) above, the completion and execution of the main contract should be proceeded with expeditiously. 

456.    In those cases in which the authority concerned has no power to agree to a variation from schedule of the essential rates, emergency powers to fix rates might be granted, such powers being modified or withdrawn, if abused. 

457.    The employment of a contractor in no way relieves the authorities concerned from responsibility as to the standard or progress of the work or supply.   Contracts framed agreeably to the provisions in the foregoing paragraphs provide adequate powers for securing satisfaction in these respects.                                                                                            .

458.    The capability and financial status of a contractor should be investigated before any contract is placed with him.

459.    Power to withhold payment of any sum of money due to a contractor and to retain it under a lien for setting off claims whether arising out of the particular contract or out of any other transaction or claim whatever against the contractor, should be secured.