Rule 172 of The General Financial Rules 2017 Advance and Part Payments to Suppliers

Rule 172 of The General Financial Rules 2017 Advance and Part Payments to Suppliers

Original Rule Text

Rule 172 (1) Advance payment to supplier Ordinarily, payments for services rendered or supplies made should be released only after the services have been rendered or supplies made. However, it may become necessary to make advance payments for example in the following types of cases: (i) Advance payment demanded by firms holding maintenance contracts for servicing of Air-conditioners, computers, other costly equipment, etc. (ii) Advance payment demanded by firms against fabrication contracts, turn-key contracts etc. Such advance payments should not exceed the following limits: (a) Thirty per cent. of the contract value to private firms; (b) Forty per cent. of the contract value to a State or Central Government agency or a Public Sector Undertaking; or (c) In case of maintenance contract, the amount should not exceed the amount payable for six months under the contract. Ministries or Departments of the Central Government may relax, in consultation with their Financial Advisers concerned, the ceilings (including percentage laid down for advance payment for private firms) mentioned above. While making any advance payment as above, adequate safeguards in the form of bank guarantee etc. should be obtained from the firm. Rule 172 (2) Part payment to suppliers: Depending on the terms of delivery incorporated in a contract, part payment to the supplier may be released after it dispatches the goods from its premises in terms of the contract.

Visual Summary

Advance Payments

Payments typically after service/supply, with exceptions.

Payment Limits

30% for private, 40% for government agencies, 6 months for maintenance.

Part Payments

Permitted as per contract terms once goods are dispatched.

Executive Summary

Rule 172 of The General Financial Rules, 2017, outlines the conditions and limits for making advance and part payments to suppliers. Generally, payments are made after services are rendered or supplies are delivered. However, exceptions are made for specific cases like maintenance or fabrication contracts, with strict limits: 30% of contract value for private firms, 40% for government agencies/PSUs, and up to six months’ worth for maintenance contracts. These ceilings can be relaxed in consultation with Financial Advisers, provided adequate safeguards like bank guarantees are secured. Part payments are also permissible based on contract terms once goods are dispatched.

In-Depth Analysis of the Rule

Rule 172 provides a framework for managing financial transactions involving advance and part payments, balancing the need for operational flexibility with stringent financial propriety. It acknowledges that while the standard practice is post-delivery payment, certain contractual arrangements necessitate upfront or staggered payments.

Breakdown of the Rule:
  • General Principle: Payments are ordinarily released only after services are rendered or supplies are made. This establishes a default position of prudence.
  • Exceptions for Advance Payments:
    • Maintenance contracts (e.g., for ACs, computers, costly equipment).
    • Fabrication contracts.
    • Turn-key contracts.
  • Limits on Advance Payments:
    • Private firms: Not exceeding 30% of the contract value.
    • State/Central Government agencies or PSUs: Not exceeding 40% of the contract value.
    • Maintenance contracts: Not exceeding the amount payable for six months under the contract.
  • Relaxation of Ceilings: Ministries/Departments can relax these ceilings in consultation with their Financial Advisers, provided adequate safeguards (e.g., bank guarantees) are obtained.
  • Part Payments: Permitted based on the terms of delivery in a contract, specifically after the supplier dispatches the goods from their premises.
Practical Example:

A Central Government department enters into a contract with a private firm for the fabrication of specialized machinery. Given the nature of fabrication, the firm requires an advance payment to cover initial material costs. According to Rule 172 (1)(a), the department can sanction an advance payment not exceeding 30% of the total contract value. Before releasing this advance, the department’s Financial Adviser would be consulted, and a bank guarantee would be secured from the firm to safeguard public funds, ensuring compliance with the rule’s provisions.

Related Provisions

Understanding Rule 172 is enhanced by considering these related provisions:

Learning Aids

Mnemonics:
  • Always Pay Later, Except Maintenance, Fabrication, Turn-key. Percentages Safeguard Government. (Advance, Part, Later, Except, Maintenance, Fabrication, Turn-key, Percentages, Safeguard, Government)
Process Flowchart:
StartNormal: Pay After ServiceAdvance Payment Needed?Maintenance/FabricationTurn-key ContractsApply Limits (30%/40%/6M)Obtain Safeguards (BG)Part Payment (Goods Dispatched)

Multiple Choice Questions (MCQs)

1. According to Rule 172 (1) of the General Financial Rules, 2017, when are payments for services rendered or supplies made ordinarily released?

  • A) Before the contract is signed
  • B) Immediately upon contract signing
  • C) Only after the services have been rendered or supplies made
  • D) At the discretion of the supplier
Show Answer

Correct Answer: C) Only after the services have been rendered or supplies made

2. What is the maximum advance payment limit for private firms under Rule 172 (1)(a) of the General Financial Rules, 2017?

  • A) 50% of the contract value
  • B) 30% of the contract value
  • C) 25% of the contract value
  • D) 10% of the contract value
Show Answer

Correct Answer: B) 30% of the contract value

3. For a State or Central Government agency or a Public Sector Undertaking, what is the maximum advance payment limit under Rule 172 (1)(b) of the General Financial Rules, 2017?

  • A) 30% of the contract value
  • B) 40% of the contract value
  • C) 50% of the contract value
  • D) 20% of the contract value
Show Answer

Correct Answer: B) 40% of the contract value

4. In the case of a maintenance contract, the advance payment under Rule 172 (1)(c) of the General Financial Rules, 2017, should not exceed the amount payable for how many months?

  • A) Three months
  • B) Twelve months
  • C) Six months
  • D) Nine months
Show Answer

Correct Answer: C) Six months

5. According to Rule 172 (2) of the General Financial Rules, 2017, when may part payments to suppliers be released?

  • A) Before the goods are manufactured
  • B) After the supplier dispatches the goods from its premises
  • C) Only after full delivery and installation
  • D) At the beginning of the financial year
Show Answer

Correct Answer: B) After the supplier dispatches the goods from its premises

Frequently Asked Questions

What is the general rule for payments under Rule 172 of the General Financial Rules, 2017?

Ordinarily, payments for services rendered or supplies made should be released only after the services have been rendered or supplies have been made.

Can the advance payment limits specified in Rule 172 of the General Financial Rules, 2017, be relaxed?

Yes, Ministries or Departments of the Central Government may relax these ceilings in consultation with their Financial Advisers concerned, provided adequate safeguards in the form of bank guarantees are obtained from the firm.

When are part payments to suppliers allowed under Rule 172 of the General Financial Rules, 2017?

Part payments to suppliers may be released depending on the terms of delivery incorporated in a contract, specifically after the supplier dispatches the goods from its premises.

Key Takeaways

  • Payments are generally made post-service or post-delivery of supplies.
  • Advance payments are permitted for specific contract types: maintenance, fabrication, and turn-key contracts.
  • Strict percentage limits apply to advance payments: 30% for private firms, 40% for government agencies/PSUs, and up to six months’ value for maintenance contracts.
  • Relaxation of these limits requires consultation with Financial Advisers and securing adequate safeguards like bank guarantees.
  • Part payments are allowed based on contract terms, specifically after the supplier dispatches the goods.

Conclusion

Rule 172 of The General Financial Rules, 2017, provides essential guidelines for managing advance and part payments, ensuring that while operational needs are met, financial prudence and accountability are maintained through specified limits and necessary safeguards. Adherence to these provisions is crucial for transparent and efficient public procurement.

Related posts:

  1. Rule 169 of The General Financial Rules 2017 Maintenance Contract
  2. Rule 67 of The General Financial Rules 2017 Advance from Contingency Fund
  3. Rule 171 of The General Financial Rules 2017 Performance Security
  4. Rule 121 of The General Financial Rules 2017 Payments to Outside Body or Fund Through Grant in Aid