Steel Authority of India Limited

Corporate Materials Management Group, Delhi

Circular
Ref. No. – SAIL/CMMG/RP/04 Date – 25.08.2004

Sub: Standard Risk Purchase Procedure in SAIL

1.0 In cases, where Risk Purchase action is to be initiated (for indigenous procurement
- other than proprietary cases), the enclosed Risk Purchase Procedure at Annexure
shall be applicable with immediate effect.

2.0 This Risk Purchase procedure shall replace all the existing individual Risk
Purchase Procedure in vogue in plants / units of SAIL.

3.0 This Risk Purchase Procedure shall be read in conjunction with the Risk Purchase
Procedure as enunciated at Clause 18.0 of Purchase / Contract Procedure –2000
and any subsequent amendments thereof.

4.0 This issues with the approval of competent authority.

(S.K.Sinha)
Executive Director (MM)
CMMG

Encl: As above (Risk Purchase Procedure for SAIL – 8 pages)

Distribution:

1. HOMMs – All plants / units of SAIL

2. Managing Directors / CEs – All plants / units of SAIL
3. Director (Technical), SAIL For kind
4. CVO, SAIL information
5. AD (Chairman’s Sectt.), SAIL

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 Annexure to the Circular of Ref. No. SAIL/CMMG/RP/04 Dt. 25.08.2004

Procedure for Risk Purchase Action – Indigenous (Other than proprietary cases)

In cases, where Risk Purchase action is to be initiated, the following Procedure shall be followed:
Sl Activity Agency
1.0 Issue of Risk Purchase Notice Dealing
1.1 Anticipatory breach of contract: (When delivery period is yet to expire) Purchase
In case where inspection team /authorised representatives of the buyer has inspected the Officer
progress of manufacturing work and are of the opinion that delivery of materials /
execution of order, cannot be made as per schedule mentioned in contract or where the
supplier has refused to perform the work / to execute the order or disabled himself to
perform the work / to execute the order, preliminary notice shall be issued directing the
party to stick to the delivery schedule (Format, giving chance for supplier to respond
and give his plan of action to meet delivery schedule, at Annexure –1). Notice period
may vary up to a maximum of 14 days from the date of issuance of the notice.
After expiry of notice period when
a) No reply is received from the supplier or
b) Based on the reply of supplier or assessment of the plant, progress is found to be
unsatisfactory,
A final RP notice is to be issued to the supplier and simultaneously, a tender enquiry is
to be issued excepting the defaulting firm, for finalization of order on alternate source at
the risk and cost of defaulting supplier, i.e. and extra expenditure incurred / loss
suffered by the purchaser will be borne by the defaulting supplier. Notice period may
vary from 14 days to 30 Days maximum from the date of issuance of the notice. The
due date of tender opening / finalisation of award may coincide with the date of expiry
of Risk Purchase Notice but should not be earlier than the date of expiry of the delivery
period and notice period.
1.2 Breach of contract: (When delivery period has expired) Dealing
1. Risk Purchase notice (format at Annexure- 2) shall be issued, for the unsupplied Purchase
quantity of the items that were to be supplied as per contractual delivery schedule in the Officer
order, directing the defaulting party to supply the material within the notice period of a
minimum of 14 days and a maximum of 30 days failing which an alternate procurement
action shall be taken at the risk & cost of the defaulting supplier, i.e. any extra
expenditure incurred / loss suffered by the purchaser will be borne by the defaulting
supplier.
Simultaneously, a Tender Enquiry is to be issued, excepting the defaulting firm, for
finalization of order on alternate source. The due date of tender opening / finalisation
of award may coincide with the date of expiry of Risk Purchase Notice but should not
be earlier than the date of expiry of the delivery period & notice period.
In case of multiple / phased deliveries, where delivery has expired for part quantity,
then for such unsupplied portion, where delivery has expired, action as per Point 1.2
above shall be taken. In case where it is anticipated that supplies against multiple /
phased deliveries will not be forthcoming, then for the balance quantities, where
delivery is yet to expire, action as per Point 1.1. above may be initiated.
Note Opinion of Law may be sought, if required: - a) In case where firm against which Risk
Purchase is to be initiated is referred to BIFR, is in liquidation, is under lock-out/labor unrest
causing delay in supply &, b) On any other points depending upon nature of the case

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 Annexure to the Circular of Ref. No. SAIL/CMMG/RP/04 Dt. 25.08.2004

Sl Activity Agency
2.0 Issue of Order on alternate source Dealing
2.1 Cancellation of quantity for placing order on alternate source: Purchase
When the case for Risk Purchase is finalized and order on alternate source is decided to Officer
be placed, the defaulted quantity in the original order is to be cancelled/reduced
through:
a) Where the default covers full quantity of all the items in the order, the order is to be
cancelled
b) Where the default covers full quantity of some of the items in the order, the item is
to be dropped from the order through an amendment.
c) Where the default covers part quantity of the items, the quantity is to be amended
suitably
Intimation of such cancellation / amendment is to be given to the defaulting party along
with a forwarding letter indicating failure of the party and risk purchase action being
thereon.
2.2 Issue of Order on Alternate Source:
After cancellation / amendment of the order, the order on alternate source is to be
placed at the earliest without any delay on the part of the Purchaser, preferably, within 3
working days of such cancellation / amendment. The defaulting party should be kept
advised on the orders finalised / placed by the Purchaser on the alternate source.
3.0 Recovery of Risk Purchase Differential Dealing
3.1 Where the cost of materials/procured from the alternate source as a result of risk Purchase
purchase action is higher than the cost as per original order, the difference is to be Officer
recovered from the defaulting supplier. Data is to be fed on the computer system and
intimation (Letter to be generated on system through recovery module) of the amount of
risk purchase differential shall be sent to defaulting supplier by registered post for
depositing the amount by demand draft, within 15 days from the date of the letter.
(Format of letter at Annexure –3)
Copy of letter is to be sent to CFM (Purchase Accounts) / Paying Authority for
initiating recovery action
The demand for recovery of extra expenses should be sent within 2 working days of
placement of risk purchase order.
3.2 If the defaulting supplier deposits the recovery amount through bank draft, the bank -DO-
draft is to be sent to Cash Section for encashment and copy of forwarding letter is to be
marked to the CFM (Purchase Accounts) / Paying Authority so that the recovery advice
could be adjusted accordingly.
3.3 All Risk Purchase recovery demand must have a unique serial number. Manual
recovery advice (not through the computerized system) should be duly acknowledged -DO-
by Finance.
3.4 If the pending bills are available in the section, the risk purchase recovery amount is to Paying
be adjusted against such pending bills Authority
3.5 Where Bank Guarantee is available for the order against which recovery is to be made, -DO-
the same may be invoked to recover the risk purchase differential based on advice of
dealing purchase officer

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 Annexure to the Circular of Ref. No. SAIL/CMMG/RP/04 Dt. 25.08.2004

Sl Activity Agency
3.6 Where there are no pending Bills against the defaulting supplier in Purchase Accounts Paying
Section / paying authority , the risk purchase recovery demand is to be circulated to all Authority
the paying sections.
3.7 Information regarding recovery made (Part or full) or pending status should be -Do-
available on the computerized system.
3.8 Where demands could not be recovered within 30 days, list of such pending demands -Do-
is to be circulated to sister plants with a copy to respective dealing purchase officer
3.9 Where intimation is received from sister plants of recovery having been made by them, -Do-
the recovery demand is to be adjusted accordingly.
3.10 If no reply is received from sister plants within 30 days, intimation is to be given to -Do-
dealing purchase officer to take up with Law department for legal action.

3.11 Take up with Law department for legal action where intimation for non-recovery is Dealing
received. Purchase
Officer
3.12 Status of recovery is to be reviewed on quarterly basis with concerned agencies. GM/DGM
(MM)

Commercial aspects for enabling Risk Purchase Action

1. All requirements of the contract, such as drawing, free supply materials (Where
applicable), if any, required by the supplier are to be fulfilled quickly, to eliminate loss of
time in execution of the Contract.
2. Purchaser & Supplier should have mutually agreed upon delivery period indicated in the
order.
3. Inspection details are to be spelt out clearly, to avoid delay.
4. L-1 procedure has to be resorted to without exception. Risk Purchase is to be taken
through LTE / Open Tender mode.
5. Material of the same specification needs to be procured so as to make risk purchase
tenable under provisions of law.
6. In order to recover the differential of the price / loss suffered by the purchaser from any
other dues which are otherwise payable against any other contract of the same plant or
any other sister plant of the company, a specific provision is required to be made in the
General Conditions / Special Conditions of Contract to this effect – Action to be taken by
the dealing officer at the time of order placement.
7. Tendering under Risk Purchase cases have to be fast track. If finalisation of order/
delivery of material against Risk Purchase cases are delayed beyond reasonable time, this
will weaken the case for recovering the Risk Purchase Differential from the first supplier.

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 Annexure-1

Steel Authority of India Limited Phone: <STD Code / Phone Nos.>

< Name of the Plant> Fax : <STD Code / Fax Nos.>
Purchase Department E-Mail: <e-mail Address>
<Address / City, PIN, State>

Ref. No.: Pur /…………………. Date: ____/____/____

(By Registered Post)

To: (Name & Address of the Supplier>

M/s ……………………………………..
………………………………………….
………………………………………….
………………………………………….

Subject: - Pre-Emptory Notice for Anticipated Beach of Contract

Sir,

This has reference to Purchase Order No……….Dated …….for supply of <name of item> as
detailed below, which shows the quantity to be supplied and the delivery schedule as per the
order.

Sl. PO No. & Catalogue Item Description Contractual Quantity to

No. Dated Delivery Date be supplied

It is pertinent to mention that our concerned officers have inspected the status of work at your
premises and have found that you have not yet started manufacturing of the ordered material /
you are very slow in manufacturing the ordered quantity. From the above, it is gathered that,
with such slow progress the ordered quantity is not likely to be delivered within the stipulated
delivery schedule.

Since the material is urgently / critically required, you are hereby requested to expedite and
complete the manufacture of the ordered quantity so that material is available as per delivery
schedule.

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Kindly inform the undersigned, within ----- days, of the steps already taken, or that are being
taken to ensure supply as per delivery schedule.

In case the progress of work or your reply detailing steps to ensure availability of material as per
delivery schedule are found inadequate we shall have no alternative but to procure the material
from other agency at your risk & cost.

Please note that we reserve our right to claim any losses or damages, which the purchaser
company may sustain on account of your breaches and flouting the instructions as above.

This issues without prejudice to our other contractual rights and claims against the above
purchase order.

Thanking You.

Yours faithfully,
For & on behalf of SAIL / <Name of the Plant>

----------------------------
<Name of Signatory>
<Designation>

Copy to: Inspection –In –Charge – Inspection of items beyond notice expiry date to be done only
after clearance from Purchase.

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 Annexure- 2

Steel Authority of India Limited Phone: <STD Code / Phone Nos.>

< Name of the Plant> Fax: <STD Code / Fax Nos.>
Purchase Department E-Mail: <e-mail Address>
<Address / City, PIN, State>

Ref. NO.: Pur /…………………. Date: ____/____/____

(By Registered Post)

To: (Name of the Supplier>
M/s ……………………………..
………………………………….
………………………………….
………………………………….

Subject: - Risk Purchase Notice

Sir,

This has reference to Purchase Order No………….Dated ………. for supply of <name of
item> as detailed below, which shows the quantity to be supplied and the actual supplies as per
our records.

Sl. PO No. Catalogue Item Contractual Quantity to Actual supply

No & Date Description Delivery be supplied
.

From the above tabular description you shall appreciate that you have still not carried out your
contractual obligations as envisaged in the purchase order.

In spite of our reminders, you have failed to supply the materials, which are critically required by
<Name of the plant>.

From the above, it is evident that you have committed breach of aforesaid purchase order by not
adhering to the delivery schedule mentioned above.

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You are once again requested to supply the materials by ____/_____/______<date>, failing
which the company shall have no option but to procure the materials from alternate sources at
your risk and cost and any extra amount incurred in procurement of materials from other sources
shall be recovered from you.

This issues without prejudice to our other contractual rights and claims against the above
purchase order.

Thanking You.

Yours faithfully,
For & on behalf of SAIL / <Name of the Plant>

----------------------------
<Name of Signatory>
<Designation>

Copy to: Inspection –In –Charge – Inspection of items beyond notice expiry date to be done only
after clearance from Purchase.

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 Annexure- 3

Steel Authority of India Limited Phone: <STD Code / Phone Nos.>

< Name of the Plant> Fax: <STD Code / Fax Nos.>
Purchase Department E-Mail: <e-mail Address>
<Address / City, PIN, State>

Ref. NO.: Pur /…………………. Date: ____/____/____

(By Registered Post)

To: <Name of the Supplier>
M/s ……………………………..
………………………………….
………………………………….
………………………………….
Suppler Code: <Supcd>
Area Code: <Areacd>
Sir,
Subject: Recovery / Stop Payment advice against Purchase Order

You are requested to deposit Rs. <Recovery amount> to our Accounts Department within 15
days of date of issue of this letter, for reason detailed below.

P O Number: <Order Number> Dated: <Order date>

Recovery Advice No: <rec adv number> Dated: <rce adv date>

Recovery Reason: <RP Differential or other reason to be mentioned>

Document Reference: <ref doc number>

Doc. Reference Date: <ref doc date>

Kindly acknowledge receipt

For SAIL/ <Name of the plant>

---------------------------
<Name of Signatory >
<Designation>
Copy to:
<Paying Authority>: If firm fails to deposit the amount within 15 days, kindly recover amount
from bills of supplier as per details given above and intimate details of
recoveries made. If recoveries are not affected, kindly intimate us for
taking further contractual action. Kindly acknowledge receipt.

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