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Government as a contracting party & Standard Form Contracts

Government Contract:
A contract to which The Central Government or a State Government is a party is called a 'Government Contract'.
Position in India
The Indian Contract Act, 1872 does not prescribe any form for entering into contracts. A contract may be oral or in writing. It may
be expressed or be implied from the circumstances of the case and the conduct of the parties.
But the position is different in respect of Government Contracts. A contract entered into by or with the Central or State
Government has to fulfill certain formalities as prescribed by Article 299 of the Indian Constitution.
'Contracts' and 'Government contracts'
It is true that in respect of Government Contracts the provisions of Article 299(1) must be complied with, but that does not mean
that the provisions of the Indian Contract Act have been superceded.
As regards the interpretation of contract, there is no distinction between the contracts to which one of the parties is the
Government and between the two private parties.
Though there is hardly any distinction between a contract between private parties and Government contract so far as
enforceability and interpretation are concerned yet some special privileges are accorded to the Government in the shape of
special treatment under statutes of limitation.
Some privileges are also accorded to Government in respect of its ability to impose liabilities with preliminary recourse to the
courts. This probably is because of doctrines of executive necessity and public interest.
Formation of Government Contracts
The executive power of the Union of India and the States to carry on any trade or business, acquire, hold and dispose property
and make contracts is affirmed by Article 298 of the Constitution of India. If the formal requirements required by article 299 are
complied with, the contract can be enforced against the Union or the States.
Article 299 provides:
"(1) All contracts made in the exercise of executive power of the union or 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 person and in such manner as he may direct or
(2) Neither the President nor the Governor shall be personally liable in respect of any contract or assurance made or executed for
the purpose of any enactment relating to Government of India hereto before in force , nor shall any such contract or assurance on
behalf of any of them be personally liable in respect thereof".
Thus Article 299 lays down three conditions which the contracts made in the exercise of the executive power of the Center or a
State must fulfill to be valid The contract must be expressed to be made by the president or the Governor as the case may be;
These contracts made in the exercise of the executive power are to be executed on behalf of the President/Governor as the case
may be; and
The execution must be by such person and in such manner as the President or the Governor of the case as the case may be, may
direct or authorize.
The expression "executed" does not by itself contemplate execution of a formal contract by the executing parties. A tender for
the purchase of goods in pursuance of a tender notice, notification or statement inviting tenders issued by or on behalf of the
President or the Governor, as the case may be, and acceptance in writing which is expressed to be made in the name of the
President or Governor and is executed on his behalf by a person authorized in that behalf would fulfill the requirements of Article
299(1). If these requirements are fulfilled, a valid contract may result from the correspondence.
Where a contract is made by tender and acceptance, the acceptance must be made by a duly authorized person and on behalf of
the President, and a valid contract may result from correspondence.
A contract complying with the Article can be enforced by or against the government. It is subject to the general provisions of the
contract law ,and its terms cannot be changed by resorting to Article 14 of the constitution . A contract not complying with any of
the conditions of Article 299(1) of the Constitution is not binding on or enforceable by the Government , and is absolutely void ,
though not so for collateral purposes , and cannot be ratified. No damages can be claimed for breach unless the contract is
complete under this article.
The provisions have been embodied to protect the general public as represented by the government. The terms of the Article
have therefore been held to be mandatory and not merely directory. This means that a contract not couched in the particular
form stipulated by Article 299(1) cannot be enforced at the instance of any of the contracting parties. Neither the government
can be sued and held liable for the breach of such a contract nor can the government enforce such a contract against the other
contracting party.
Principles Underlying Government Contracts
Reasonableness, fairness
The principle of reasonableness and rationality which is legally as well as philosophically an essential element of equality or nonarbitrariness is projected by Article 14 and it must characterize every State Action , whether it be under the authority of law or in
exercise of executive power without making of law. The state cannot , therefore , act arbitrarily in entering into relationship,
contractual or otherwise with a third party, but its action must conform to some standard or norm which is rational an nondiscriminatory. The action of the Executive Government should be informed with reason and should be free from arbitrariness.
It is indeed unthinkable that in a democracy governed by the rule of law the executive Government or any of its officers should
possess arbitrary power over the interests of the individual. Every action of the executive Government must be informed with
reason and should be free from arbitrariness. That is the very essence of the rule of law and its bare minimal requirement. And to
the application of this principle it makes no difference whether the exercise of the power involves affection of some right or denial
of some privilege.
ll actions of the State and its instrumentality are bound to be fair and reasonable. The actions are liable to be tested on the
touchstone of Article 14 of the Constitution of India. The State and its instrumentality cannot be allowed to function in an
arbitrary manner even in the matter of entering into contracts. The decision of the State either in entering into the contract or
refusing to enter into the contract must be fair and reasonable. It cannot be allowed to pick and choose the persons and entrust
the contract according to its whims and fancies. Like all its actions, the action even in the contractual field is bound to be fair. It is
settled law that the rights and obligations arising out of the contract after entering into the same is regulated by terms and
conditions of the contract itself.
The requirement of 'fairness' implies that even administrative authority must act in good faith; and without bias; apply its mind to
all relevant considerations and must not be swayed by irrelevant considerations; must not act arbitrarily or capriciously and must
not come to a conclusion which is perverse or is such that no reasonable body of persons properly informed could arrive at. The
principle of reasonableness would be applicable even in the matter of exercise of executive power without making law. It is
settled principle of law that the court would strike down an administrative action which violates any foregoing conditions.

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The duty to act fairly is sought to be imported into the contract to modify and alter its terms and to create an obligation upon the
State which is not there in the contract. The Doctrine of fairness or the duty to act fairly and reasonably is a doctrine developed in
the administrative law field to ensure the Rule of Law and to prevent failure of justice where the action is administrative in nature.
Just as principles of natural justice ensure fair decision where the function is quasi-judicial, the doctrine of fairness is evolved to
amend, alter or vary the express terms of the contract between the parties. This is so, even if the contract is governed by
statutory provisions.
In a democratic society governed by the rule of law, it is the duty of the State to do what is fair and just to the citizen and the
State should not seek to defeat the legitimate claim of the citizen by adopting a legalistic attitude but should do what fairness
and justice demand.
Public Interest
Tate owned or public owned property is not to be dealt with at the absolute discretion of the executive. Certain percepts and
principles have to be observed. public interest is the paramount consideration. There may be situations where there are
compelling reasons necessitating the departure from the rule, but there the reasons for the departure must be rational and
should not be suggestive of discrimination. Appearance of public justice is as important as doing justice. Nothing should be done
which gives an appearance of bias, jobbery or nepotism.
The consideration to weigh in allotting a public contract are and have to be different than in case of a private contract as it
involves expenditure from the public exchequer. The action of the public authorities thus have to be in conformity with the
standards and norms which are not arbitrary, irrational or unreasonable. And whenever the authority departs from such standard
or norms, the Courts intervene to uphold and safeguard the equality clause as enshrined in Article 14 of the Constitution and
strike down actions which are found arbitrary, unreasonable and unfair and prone to cause a loss to the public exchequer and
injury to public interest. Therefore, even when an award of contract may not be causing any loss to the public exchequer
manifestly, it may still be liable to quashment for being unfair, unreasonable, discriminatory and violative of the guarantee
contained in Article 14.
Equality, non-arbitrariness
From a positivistic point of view, equality is antithetic to arbitrariness. In fact, equality and arbitrariness are sworn enemies; one
belonging to the rule of law in a republic, while the other, to the whim and caprice of an absolute monarch. Where an act is
arbitrary, it is implicit in it that it is unequal both according to political logic and constitutional law and is violative of Article 14.
the principle of reasonableness, which legally as well as philosophically, is an essential element of equality or non-arbitrariness
pervades Article 14 like a brooding omni-presence and the procedure contemplated by Article 21 must answer the test of
reasonableness in order to be in conformity with Article 14.
Contractual Liability
Article 299(2) immunizes the President, or the Governor, or the person executing any contract on his behalf, from any personal
liability in respect of any contract executed for the purposes of the Constitution, or for the purposes of any enactment relating to
Government of India in force. This immunity is purely personal and does not immunize the government, as such, from a
contractual liability arising under a contract which fulfills the requirements under Article 299(1).
The governmental liability is practically the same as that of a private person, subject, of course, to any contract to the contrary.
In order to protect the innocent parties, the courts have held that if government derives any benefit under an agreement not
fulfilling the requisites of Article 299(1), the Government may be held liable to compensate the other contracting party the Act,
on the basis of quasi-contractual liabilities, to the extent of the benefit received. The reason is that it is not just and equitable for
the government to retain any benefit it has received under an agreement which does not bind it. Article 299(1) is not nullified if
compensation is allowed to the plaintiffs for work actually done or services rendered on a reasonable basis and not on the basis
of the terms of the contract.
three conditions namely:
1. a person should lawfully do something for another person or deliver something to him;
2. in doing so, he must not intend to act gratuitously; and
3. the other person for whom something is done or to whom something is delivered must enjoy the benefit thereof.
The Courts have adopted this view on practicable considerations. Modern government is a vast organization. Officers have to
enter into a variety of petty contracts, many a time orally or through correspondence without strictly complying to the provisions
under Article 299. In such a case, if what has been done is for the benefit of the government for its use and enjoyment, and is
otherwise legitimate and proper, the Act should step in and support a claim for compensation made by the contracting parties
notwithstanding the fact that the contract in question has not been made as per the requirements of Article 299.If it was to be
held in applicable, it would lead to extremely unreasonable circumstances and may even hamper the working of government.
Like ordinary citizens even the government should be subject to the provisions .
Similarly, if under a contract with a government, a person has obtained any benefit, he can be sued for the dues of the Act
though the contract did not confirm to Article 299. if the Government has made any void contracts it can recover the same of the
It needs to be emphasized that , Contract Act, does not deal with the rights and liabilities of parties accruing from that from
relations which resemble those created by contracts. Thus, in cases falling , the person doing something for another cannot sue
for specific performance of the contract nor can he ask for damages for breach of the contract for a simple reason that no valid
contract exists between the parties. All that is that if the goods delivered are accepted, or the work done is voluntarily enjoyed,
then the liability to enjoy compensation for the said work or goods arises. where a person does a thing not intending to act
gratuitously and the other enjoys it.
in no way detracts from the binding character of Article 299(1) . The cause of action for the respondent's claim is not any breach
of contract by the government. In fact, the claim is based on the assumption that the contract in pursuance of which the
respondent has supplied the goods, or made the construction in question, is ineffective and, as such, amounts to no contract at
all. Thus, does not nullify Article 299(1). In fact, may be treated as supplementing the provisions under Article 299(1).What
prevents is unjust enrichment and it as much to individuals as to corporations and governments.
What Are Standard Form Contracts
Standard Form Contracts are agreements that employ standardized, non-negotiated provisions, usually in preprinted forms.
These are sometimes referred to as boilerplate contracts, "contracts of adhesion," or "take it or leave it" contracts. The terms,
often portrayed in fine print, are drafted by or on behalf of one party to the transaction the party with superior bargaining power
who routinely engages in such transactions. With few exceptions, the terms are not negotiable by the consumer.
Standard form, business-to-consumer contracts fulfill an important efficiency role in the mass distribution of goods and services.
These contracts have the potential to reduce transaction costs by eliminating the need to negotiate the many details of a
contract for each instance a product is sold or a service is used. However, these contracts also have the ability to trick or abuse
consumers because of the unequal bargaining power between the parties. For example, where a standard form contract is
entered into between an ordinary consumer and the salesperson of a multinational corporation, the consumer typically is in no
position to negotiate the standard terms; indeed, the companys representative often does not have the authority to alter the

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terms, even if either side to the transaction were capable of understanding all the terms in the fine print. These contracts are
typically drafted by corporate lawyers far away from where the underlying consumer and vendor transaction takes place.
The danger of accepting unfair or unconscionable terms is greatest where these artful drafters of such contracts present
consumers with attractive terms on the visible or shopped terms of most interest to consumers, such as price and quality, but
then slip one-sided terms benefiting the seller into the less visible, fine print clauses least likely to be read or understood by
consumers. In many cases, the consumer may not even see these contracts until the transaction has occured. In some cases,
the seller knows and takes advantage of the knowledge that consumers will not read or make decisions on these unfair terms.
Multilateral Trade Agreements: Pros, Cons and Examples
Definition: Multilateral trade agreements are commerce treaties between three or more nations. The agreements reduce tariffs
and make it easier for businesses to import and export. Since they are among many countries, they are difficult to negotiate. That
same broad scope makes them robustl once all parties sign.
Multilateral agreements make all signatories treat each other the same. That means no country can give better trade deals to
one country than it does to another.
That levels the playing field. It's especially critical for emerging market countries. Many of them are smaller in size, making them
less competitive. See more on the benefits of the Most Favored Nation Status.
The second benefit is that it increases trade for every participant. Their companies enjoy low tariffs. That makes their exports
The third benefit is it standardizes commerce regulations for all the trade partners. Companies save legal costs since they follow
the same rules for each country.
The fourth benefit is that countries don't have to negotiate trade deals one country at a time. Bilateral trade agreements tend to
favor the country with the best economy. That puts the weaker nation at a disadvantage. The stronger nation has a more detailed
approval process. It would prefer to get one agreement ratified instead of dozens.
Multilateral agreements are complex.
That makes them difficult and time-consuming to negotiate.
Second, the details of the negotiations are particular to trade and business practices. That means the public often
misunderstands them. As a result, they receive lots of press, controversy, and protests.
The third disadvantage is common to any trade agreement.
Some companies and regions of the country suffer when trade borders disappear. Smaller businesses can't compete with giant
multi-nationals. They often lay off workers to cut costs. Others move their factories to countries with a lower standard of living. If
a region depended on that industry, it would experience high unemployment rates. That makes multilateral agreements
Some regional trade agreements are multilateral. The largest is the North American Free Trade Agreement (January 1,
1994). NAFTA is between the United States, Canada, and Mexico. It increased trade 300 percent between it beginning and 2009.
Find out What Happens If Trump Dumps NAFTA?
The Central American-Dominican Republic Free Trade Agreement (Signed on August 5, 2004). CAFTA eliminated tariffs on more than 80
percent of U.S. exports to six countries. These include Costa Rica, Dominican Republic, Guatemala, Honduras, Nicaragua and El
Salvador. By 2013, it increased trade 71 percent to $60 billion.
The Trans-Pacific Partnership (Negotiations concluded on October 4, 2015).
The TPP would be bigger than NAFTA if Congress approved it. It is between the United States and eleven other countries
bordering the Pacific Ocean. It would remove tariffs and standardize business practices. Current trade is $2 trillion in goods
(2012 estimate) and $242 billion in services (2011 estimate). Donald Trumppromised to withdraw from the agreement. He would
replace it with bilateral agreements.
All global trade agreements are multilateral. The most successful one is the General Agreement on Trade and Tariffs (GATT). One
hundred fifty-three countries signed it in 1947. Its goal was to reduce tariffs and other trade barriers.
In September 1986, the Uruguay Round began in Punta del Este, Uruguay. It centered on extending trade agreements to several
new areas. These included services and intellectual property. It also improved trade in agriculture and textiles. On 15 April 1994,
the 123 participating governments signed the agreement in Marrakesh, Morocco. That created the World Trade Organization
(WTO). It assumed management of future global multilateral negotiations.
The WTO's first project was the Doha round of trade agreements in 2001. That was a multilateral trade agreement between all 149
WTO members. Developing countries would allow imports of financial services, particularly banking. In so doing, they would have
to modernize their markets. In return, the developed countries would reduce farm subsidies. That would boost the growth of
developing countries that were good at producing food. But farm lobbies in the United States and the European Union stopped it.
They refused to agree to lower subsidies or increased foreign competition. The WTO abandoned theDoha round in June 2006.
On December 7, 2013, WTO representatives agreed to the so-called Bali package. All countries agreed to streamline customs
standards and reduce red-tape to expedite trade flows. Food security is an issue. India wants to subsidize food so it could
stockpile it to distribute in case of famine. Other countries worry that India may dump the cheap food in the global market to gain
market share.

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