TRIBHUVAN UNIVERSITY

INSTITUTE OF ENGINEERING
PULCHOWK CAMPUS

Assignment Report
On

Procurement Management
Termination of Contract

Submitted By: Submitted To:

Prof. Khem Nath Dallakoti
Name: Suman Raj Regmi
Department of Civil Engineering
Roll no: 073BCE175
Pulchowk Campus, T.U.
Elective-III
Termination of Contract
When the obligations created by a contract come to an end, the contract is said to be terminated.
These obligations come to an end under various grounds and these shall have to be provided
well in the procurement contract as per Public Procurement Act, 2063. These scenarios could
be either the completion of objectives for which the contract was awarded, which is the most
natural one, or possibly could be the breaching of contract from the Public Entity or from the
other party who was procured.
Basically, as fore mentioned, any procurement contract can terminate in two ways:
I. By Performance
II. By Non-Performance
By Performance termination is the more general way in which a procurement contract can
terminate. It is achieved when both the parties involved in the contract have been freed from
their obligations after they have fulfilled their responsibilities. Any payment remaining for the
work performed is satisfactorily completed.
By Non-Performance termination of contract is less usual and it results when the contract is
breached by anyone party involved in the contract procedure. It may occur on various
scenarios, for example, when the service that was needed to be delivered to the Public Entity,
is not delivered satisfactorily, or when the service that was to be delivered by the procured
party involves acts that are impossible to be achieved in the prevalent environment, or even
when the Public Entity thinks that the delivery of works or services, is causing inconvenience,
against the interests of the public. In the latter case, however, the Public Entity is to be held
responsible for appropriate compensations.
Declarations made with the intention of terminating a contract, from any of the involved
parties, have legal effect only when their authority has been articulated in the applicable law or
conferred by the contract. These provide bases for the formal termination of contract which is
notified to the proper end by a letter of termination, any without such conference to any such
articulation, in the contract or the applicable law, the notice is deemed to have been baseless
and would only trigger the other party to invoke the right to terminate the contract on the basis
that its continuance cannot be reasonably expected.
The legal provisions that, address the various situations that may arise during the
implementation of the contract have been kept under Section-59 of the Public Procurement
Act, 2063(referred to as “act” hereafter).
The Section-59 of the act has 5 Sub-sections, of which, Sub-section (1) mentions that the
contract may only be terminated under the grounds specified in Sub-section (2) which shall
have to be specified in the contract , Sub-section (3) mentions the provisions for financial
settlement and compensation in the event of termination of the contract, Sub-section (4)
mentions that unless otherwise provided for the termination of the contract, the Public Entity
may terminate the contract on the grounds of convenience and finally, the Sub-section (5)
mentions for the compensation that the Public Entity must arrange in the event of termination
of the contract as per the Sub-section (4) of the Section (59) of the act.
The Section (59) of the act is presented below:

59. Termination of Procurement Contract and Remedy Therefor:

(1) The procurement contract shall have to specify the grounds in which such contract may be
terminated.
(2) The main grounds under Sub-section (1) may be the following: -
(a) Grounds that the Public Entity may terminate procurement
contract if the supplier, consultant, service provider or
construction entrepreneur breaches the procurement contract,
(b) Grounds that the Public Entity may terminate the procurement
contract on the grounds of convenience for public interest,
(c) Grounds that a supplier, consultant, service provider or
construction entrepreneur may terminate the procurement
contract, and
(d) Grounds that procurement contract may be terminated for force majeure.
(3) A procurement contract shall include along with the following
matters the provision of financial settlement and compensation to be made in
the event of termination of the procurement contract: -
(a) If payment is remaining to be made for the value of work,
supply or service that has already been satisfactorily
completed, payment thereof,
(b) Liability to be borne by a defaulting supplier, consultant,
service provider or construction entrepreneur for the increased
cost to be incurred by the Public Entity to carry out or cause to
be carried out the work under the procurement contract,
(c) Amount of the actual loss sustained by the supplier or
consultant or service provider or construction entrepreneur due
to the termination of procurement contract by the Public Entity
without any default on his/her part.
(4) Unless otherwise provided in the procurement contract, for public interest, the Public Entity
may terminate a procurement contract on the grounds of convenience.

(5) Where a procurement contract has been terminated pursuant to Sub-section (4), the Public
Entity shall have to pay the value for the following work that has been completed prior to the
termination of the said contract: -
 (a) Payment due under clause (a) of Sub-section (2),
(b) Where expenditure is to be paid on reimbursement basis, such expenditure as
actually incurred.
(c) The price of the goods specially manufactured for the Public
Entity under the procurement contract,
(d) Excluding the lost profit and the amount under clause (c) of
Sub-section (3), the expenditure incurred for termination of the procurement contract,
and
(e) Other expenditure as prescribed.

The Section (59) of the act, hence defines and addresses all the possibilities of contract
termination that shall have to be specified in the procurement contract, and also in some
special grounds, provides ways to terminate the contract, arising in special situations.
It is clear from the Section of the act that the termination of the contract can only get legality
when so is justified under various occurrence of events. It could be either when the parties get
freed from their responsibility to deliver the required goods and services that the Public
Entity recognizes and verifies and completes the payment, as mentioned in the contract.
The termination could be from one of the sides best suited for their interests as within the
limitation provided by the act. It could also be due to the occurrence of disaster like
landslides, earthquakes or engagement in war, and is within the clause (d) of the Sub-section
(2) as force majeure.
The outcome of such terminations, when the works are not completed, may raise disputes
between the parties, in financial issue, due to loss incurred on either side. The loss should be
compensated well to the respective party. When the works are completed, the required
payment is to be made to the procured party. This is defined as per the Sub-section(3).
Sub-section (4) gives rights to the Public Entity to terminate, even if the cause of termination
is not mentioned in the contract agreement, if the works is causing against the best interest of
the public, and subsequently, Sub-section(5) makes the Public Entity responsible for the
value of the completed work to the other party.

References:
Public Procurement Act, 2063
Purchasing Principles and Management, Peter JH Baily
Consequences of termination of public procurement contracts, Kesikli Law Firm, Turkey.