Government Contracts: The Special Contracts regulated by constitutional Provisions

Posted On : December 13, 2022
Government Contracts: The Special Contracts regulated by constitutional Provisions
This Article seeks to discuss the special nature of government contracts with reference to Constitutional provisions such as Article 299 and Article 300 and Contract Act, 1872.
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Table of Contents

A legal arrangement between two or more parties is referred to as a "contract." A genuine consideration, an offer and acceptance, and other requirements must all be present for a contract to be considered legally enforceable. However, the federal or state governments are one of the parties to contracts with the government.

Government contracts are the types of contracts that the government executes for a range of objectives, including building, managing, providing a workforce, maintaining and repairing the property, doing IT-based initiatives, etc. Government contracts are those in which the federal or state governments participate. A contractor is a person who carries out a contract on the government's behalf.

Constitutional Provisions of Government Contracts

The central and state governments are acknowledged as having legal obligations under the Indian Constitution. The ability of the federal and state governments to engage in any trade or company, keep and sell property, and enter into agreements for whatever reason is expressly stated in Article 298 of the Constitution. It is the union's and the state’s executive authority. Like the previous article, Article 299 specifies the form and procedure for such contracts.

Article 299 of the Constitution of India reads; “All contracts made in the exercise of the executive power of the Union or of a State shall be expressed to be made by the President, or by the Governor of the State, as the case may be, and all such contracts and all assurances of property made in the exercise of that power shall be executed on behalf of the President or the Governor by such persons and in such a manner as he may direct or authorize.”

As a result, in accordance with Article 299, the following conditions must be met for a government contract to be valid:

1. All contracts must expressly state that they were made by the president in the case of the central government and the governor in the case of state governments.

2. Depending on the circumstances, all government contracts must be carried out on behalf of the state governors or the president of India.

3. Depending on the circumstances, either the president or the governor must carry out all contracts.

The government contract must be in writing because the word "executed" is used in the Article. For the purposes of Article 299, a verbal agreement between the government and the other party is void.


Principles of Government Contracts

The principles of government contracts are:


The transparency concept ensures that the state authorities negotiate contracts with the opposite party using a fair and impartial process. Additionally, the authorities are required to arrange open forums where supporters may voice their concerns and ask questions. To guarantee that the procedures are carried out by the government authorities in a fair and equitable way, third-party papers and petitions are also made public.



According to this rule, the selection process for government contracts must be set up such that the government only concentrates on the procedures that are absolutely necessary, have related conditions and deadlines, and need the least number of resources. Additionally, before choosing the recipient of a government contract, the competent authority must make sure that it has made the proper financial arrangements and conducted the necessary initial investigation to ascertain the contract's purpose.



According to this idea, if a disagreement emerges about a government contract, all parties involved—including contractors, state agencies, government officials, etc.—will be held responsible. Therefore, if their actions or inaction resulted in losses or violated any contract condition, they will be subject to civil, criminal, and disciplinary punishment.


Contractual Balance

According to the notion of contractual balance, parties to government contracts must preserve parity about the responsibilities, rights, and considerations agreed upon during the contract's execution. Thus, if the parties' equilibrium is not preserved, the proper actions must be taken to bring them back in line.


Essentials of Government Contracts and the Critical Role Played by the Judiciary

The requirements of Article 299 of the Indian Constitution apply to the basic components of government contracts. It is essential in defining the procedures for carrying out government contracts. The following list includes the key prerequisites for government contracts.

Article 299 is a mandatory requirement when it comes to government contracts

According to several court rulings, Article 299 is supported by public policy and the protection of the general public. The courts have ruled that a government contract must adhere to the requirements of Article 299 of the Constitution. A contract like this is invalid if any party doesn't comply with any of the requirements outlined in Article 299 of the agreement. Therefore, none of the contractual parties may enforce such a contract. Furthermore, the government cannot be held accountable or sued for damages for breaking such a contract. Furthermore, the contracting party cannot be held liable under such a contract by the government.

K.P. Chowdhary v. State of Madhya Pradesh (1966) was an auction in which the appellant placed the highest bids for two forest contracts. One of the auction's conditions stated that the bidder's earnest money would be lost in that case, and any resulting shortfall would be recovered from him as arrears of land income. In the meanwhile, a disagreement developed between the bidder and the forest department, and since the disagreement was not resolved to the bidder's satisfaction, he refused to abide by the contract's provisions. A contract that complied with Article 299(1) has never been signed, according to the acknowledged viewpoint. According to the Supreme Court, the phrase "required terms" in Article 299 means that there should be no implicit contract between the parties. A government contract must be in writing, as required by Article 299, and failing to comply with the requirements renders the contract between the bidder and the state government invalid.


Written contract 

A contract entered in accordance with Article 299 of the Constitution must be in writing. The need is that the contract is in writing and not only an oral agreement is made plain by the terms "expressed to be made" and "executed." This is a legal obligation that must be met.


Execution by an authorized person

The third criterion under Article 299 of the Constitution is that only a person who has been granted permission by the President or the Governor, as the case may be, to do so may engage in a government contract on behalf of the government. A contract would not be lawful if it was entered into by someone who the President or the Governor did not approve.

The Director of Railway Stores was permitted to engage in a contract on behalf of the President in Union of India v. N.K. (P) Ltd. (1972). However, the secretary of the Railway Board executed the deal. The contract was entered into by an officer who was not given the president's approval for the stated purpose, according to the Supreme Court, and as a result, it is not a valid and binding agreement.


Expression in the name of the President or the Governor

The last need for a government is that it must be expressed in the name of the President or the Governor, as applicable. The contract would not be lawful or enforceable against the government if it was not explicitly made on behalf of the President or the Governor, even though an officer with the necessary authority entered into it.

In the case of State of Punjab v. Om Prakash (1961), the executive engineer of PWD, who had been given permission by the Governor to enter into contracts, accepted the tender from PWD to build a bridge. Although the executive engineer signed the letter of approval in this instance, the Governor's name was not included. Because the contract does not adhere to the requirements of Article 299 of the Constitution, the Apex Court determined that it is invalid.


Contractual liability in government contracts

The Constitution itself recognizes the Union of India and the state governments' contractual responsibilities in matters involving government contracts. The executive power of the Central government and of each state government shall extend to the conduct of any trade or business, the purchase, possession, and disposition of property, and the formation of contracts for any purpose, according to Article 298 of the Constitution. Article 298 reads; “The executive power of the Union and of each State shall extend to the carrying on of any trade or business and to the acquisition, holding and disposal of property and the making of contracts for any purpose”, thereby, stating the Central and the state governments will be held liable in case of any dispute or issue arising out of the government contracts. 


Significant categories of government contracting

The different types of government contracts are listed below.


Fixed-price contracts

The pay-out amount is not based on the resources or labor put in during these contracts. It is a contract that already specifies the predefined value of the provided products or services. Contracts frequently include clauses like "contract modification," "economic pricing," and "defective pricing."

These agreements are made to establish a fixed price for the products or services offered and to bind the contractual parties. They provide both parties assurance.


Cost reimbursement contract

Contrary to fixed-price contracts, cost-reimbursement contracts are the type of agreement where the contractor receives payment from the business/owner in addition to reimbursement for expenses incurred while performing the task as specified in the contract. As a result, the contractor may acquire the personnel and supplies needed for the project under this kind of contract without having to squeeze everything within a small, pre-determined budget. This agreement ensures that the contractor will get paid for both the expenditures incurred and any additional payments he makes.

In a cost-plus-a-percentage-of-cost contract, the buyer reimburses the seller for the actual costs spent plus a certain percentage.


Incentive contracts

By providing financial incentives, these contracts were designed to encourage contractors to complete their tasks. Here, one party agrees to pay the other more compensation only if the other party does the assignment admirably. Contracts with incentives allow the contractor to work hard to get the greatest outcomes possible while also preventing contractor inefficiencies. Fixed-price incentive contracts, cost-plus award fee contracts, delivery incentives, performance incentives, multiple incentive contracts, and cost-plus incentive contracts are a few examples of incentive contract types.


Indefinitely delivery contract

In this kind of agreement, the time needed to complete the work specified in the contract is known, but the precise delivery time is not. This agreement guarantees the provision of the specified services in an unlimited quantity and for the specified time frame. When the amount of services is uncertain and it is thus challenging to execute the contract within the allotted time, the government engages in this sort of contract. There are three different kinds of indefinite-delivery contracts: definite quantity, indefinite quantity, and requirements contracts.


Time and materials contract

It is the final category of a public contract. It is done when there is a lack of complete understanding about how long it will take or how much it will cost. Government oversight is necessary for this type of contract to monitor the working environment and ensure that the parties uphold the contract's requirements. When no other contracts may be employed, this sort of contract is the sole option. Time and materials contracts, like fixed-price agreements, also specify a sealing price that the contractor may only exceed at his own risk.


Advantages of government contracts

Certain advantages of government contracts are mentioned below.

In a government contract, the funding for the project specified in the contract comes from the government, a reliable and stable source, allowing for greater productivity.

One's trust in the market will grow if their portfolio includes any government organizations.

Incorporating a government agency will boost the company's credibility, which will make it easier to obtain loans from lenders.



All the conditions outlined in Article 299 must be satisfied for a government contract to be considered genuine, including that it be in writing, signed by a representative of the government, and expressed, where appropriate, in the name of the president or governor. Therefore, if all of Article 299's requirements are met, a government contract is legitimate and enforceable.

Additionally, we can observe the increasing significance of government contracts as a result of the benefits and active role played by the judiciary in defending the parties' interests in line with the rules provided in Article 299 of the Indian Constitution.

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