No action against contractors for delay in work due to supply disruptions from China: Finmin

The government on Wednesday said contractors will not face any action if they fail to honour contractual obligation due to disruption in supplies on account of delay in shipment from novel coronavirus-hit China.

An office memorandum issued by the Finance Ministry directed all ministries to treat disruption due to the virus outbreak as case of natural calamity, providing relief to government contractors.

Finance Minister Nirmala Sitharaman on Tuesday had held discussions with industry representatives and others on the issue of supply chain disruptions arising from coronavirus-related issues. Many industries had raised the issue of delay in shipment from China.

A request was made that delays in execution of government contracts resulting from such supply disruptions must be treated as 'force majeure' events.

This would avoid imposition of penalties and other negative consequences on the companies executing government contracts who may be dependent on supplies from affected areas.

In response to the request, the Finance Ministry issued a clarification to all Secretaries to the Government of India that disruptions due to coronavirus may be treated as force majeure events.

This will provide relief to those companies actually affected by such disruptions having Central Government contracts.

"A doubt has arisen if the disruption of the supply chains due to spread of coronavirus in China or any other country will be covered in the Force Majeure Clause (FMC).

"In this regard it is clarified that it should be considered as a case of natural calamity and FMC may be invoked, wherever considered appropriate following the due procedure as above," the Finance Ministry said in the Office Memorandum.

"To address the issue of contractors going in default of contract obligations on account of delays in input shipments from China on account of Corona Virus, Department of Expenditure vide its O.M dated 19.2.2020 has advised that all the Ministries that disruption of the supply chain due to spread of Corona Virus in China or any other country would be considered as a case of natural calamity and Force Majeure Clause (FMC) may be invoked in appropriate cases," Finance Ministry said in a tweet.

A Force Majeure (FM) means extraordinary events or circumstance beyond human control such as an event described as an act of God like natural calamity, war, seasonal rain.

An FM clause in the contract frees both parties from contractual liability or obligation when prevented by such events from fulfilling their obligation under the contract.