Kerala High Court Upholds Kerala Water Authority's 80% Interim Payment Clause For Jal Jeevan Mission Material Supplies Contracts

The Kerala High Court has held that contractors executing Jal Jeevan Mission projects for the Kerala Water Authority (KWA) are bound by tender conditions limiting interim payments for supplied materials to 80% of the estimated rate or the quoted rate, whichever is lower. [2026 LiveLaw (Ker) 350]Justice Ziyad Rahman A.A was considering a batch of writ petitions filed by contractors who argued that KWA had unlawfully restricted payments for pipes and other materials supplied at project sites by calculating the interim payment on the basis of the estimated rate instead of the higher quoted rate. The contractors contended that the restriction was inapplicable to item-rate contracts and was intended only for lump-sum contracts.The Court examined whether clauses in the Notice Inviting Tender (NIT) restricting interim payment to 80% of the estimated rate or quoted rate, whichever is lower, apply to item-rate contracts under the Jal Jeevan Mission, or only to lump-sum contracts.The contractors argued that Clause 8.8, which refers to "break up of payment" and "secured advance", presupposes a lump-sum contract where payment milestones are separately identified. Since their contracts specified individual rates for every item, they claimed the clause could not govern their contracts.The Court noted that the NIT itself was specifically drafted for item rate contracts, with multiple provisions, including Clause 8.16.1, the letter of acceptance and the special conditions for Jal Jeevan Mission works which expressly refers to item-rate payments. The court thus held that the payment restriction in Clauses 8.8 and 9.14.1.6 was consciously incorporated to govern such contracts as well.“Ext.P3 Volume 2 of NIT which contains the special condition for Jal Jeevan works, specifically contemplates in clause 8 of the special conditions that, the work is tendered in item rate contract basis. Thus, it is evident that, the NIT was prepared for the purpose of an item rate contract, but yet, while formulating the terms and conditions thereof, a specific clause was incorporated therein with regard to the payments to be effected after the supply of goods were made by the contractor, by confining the same to 80% of the estimated rate/quoted rate whichever is less.” Court noted. The court further noted that these clauses were deliberately introduced following a KWA Board resolution and subsequent proceedings of the Managing Director in 2019.The Court observed that the petitioners have submitted their tenders after fully knowing about the said clause in the NIT and also entered into agreements when the works were awarded to them, hence they cannot subsequently seek benefits which are contrary to the terms. “The petitioners have submitted their tenders after fully knowing about the said clause in the NIT and also entered into agreements when the works were awarded to them. Thus, they have accepted the terms and conditions in the NIT and acted upon the same. Therefore, the petitioners cannot now seek for the benefits which are not contemplated therein, after entering into an agreement consequent to the acceptance of the tender submitted by the petitioner, by agreeing to the terms and conditions in the NIT” Court said. The petitioners also relied on the Sale of Goods Act, arguing that ownership of the supplied pipes had already passed to KWA, entitling them to payment at the full quoted value.The Court noted that the supply of pipes formed only an incidental part of a larger works contract involving design, construction, commissioning and maintenance of water infrastructure. Since the transaction was not a standalone sale of goods but part of contractual performance, principles governing transfer of title under the Sale of Goods Act did not apply.“In other words, supply of pipes and other materials is an incidental activity for effectively fulfilling the obligations of the contract, and the fact that the supply of those goods were made would not result in fulfilment of the obligations of the petitioner completely and thus the said act of supply cannot be treated as a concluded sale, as envisaged in the Sale of Goods Act, 1930.” Court noted. The court further clarified that the disputed clauses regulate only initial or part payments upon supply of materials. They do not extinguish the contractors' entitlement to receive the contractual value at later stages in accordance with the agreement.The Court also relied on Jagdish Mandal v. State of Orissa [(2007) 14 SCC 517] and Tata Motors Ltd. v. Brihan Mumbai Electric Supply and Transport Undertaking (Best) and Ors. [(2023) 19 SCC 1] to hold that courts should not interfere with commercial tender conditions unless the decision-making process is shown to be arbitrary, mala fide or contrary to public interest.The Court thus dismissed the writ petitions. Case Title: M/S Chicago Constructions International Private Limited v Kerala Water Authority and connected casesCase No: WP(C) 19467/ 2024 and...

Kerala High Court Upholds Kerala Water Authority's 80% Interim Payment Clause For Jal Jeevan Mission Material Supplies Contracts

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Kerala High Court Upholds Kerala Water Authority's 80% Interim Payment Clause For Jal Jeevan Mission Material Supplies Contracts

Anamika MJ

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