Karnataka Alters Clause to Allow Delay in Contractor Payments

12 Jun 2025 CW Team

Since April 2007, standard tender documents mandated that government departments pay contractors within 60 days of bill submission. The clause previously read: “The employer (government department) shall pay the contractor within 60 days of the submission of bill.”

However, a new order issued by the state’s finance department on 6 June amends this to: “The employer shall, as far as possible, pay the contractor within 60 days of submission of bill.” The revised wording effectively weakens the obligation to make timely payments and offers the government leeway to justify delays.

The change applies to contracts ranging from less than Rs 2 million to those valued between Rs 10 million and Rs 1 billion. The finance department clarified that the amendment is valid for tenders invited henceforth and does not affect those already issued.

A senior official justified the change as a safeguard against litigation, stating that the government often struggles to disburse funds on time. “The phrase ‘as far as possible’ allows room to explain payment delays,” the official said.

Contractors, however, have criticised the decision. R Manjunath, president of the Karnataka State Contractors Association, remarked that the 60-day clause was rarely adhered to in practice. “We regularly had to sue the government and claim interest on delayed payments,” he noted.

In addition to facing delayed payments, contractors undertaking works worth more than Rs 10 million but less than Rs 1 billion remain liable for liquidated damages if project progress falls short. Manjunath pointed out that delays are often caused by ground conditions or postponed ground-breaking events due to political factors.

The policy revision is likely to aggravate the already strained relationship between the state and its contractors, potentially impacting the pace and efficiency of public infrastructure works across Karnataka.

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The Karnataka government has modified a critical clause in its standard tender documents, allowing departments the option to delay payments to contractors for public works. This move by the Siddaramaiah administration comes amid rising tensions with contractors over unpaid dues amounting to Rs 320 billion (approximately £3 billion).Since April 2007, standard tender documents mandated that government departments pay contractors within 60 days of bill submission. The clause previously read: “The employer (government department) shall pay the contractor within 60 days of the submission of bill.”However, a new order issued by the state’s finance department on 6 June amends this to: “The employer shall, as far as possible, pay the contractor within 60 days of submission of bill.” The revised wording effectively weakens the obligation to make timely payments and offers the government leeway to justify delays.The change applies to contracts ranging from less than Rs 2 million to those valued between Rs 10 million and Rs 1 billion. The finance department clarified that the amendment is valid for tenders invited henceforth and does not affect those already issued.A senior official justified the change as a safeguard against litigation, stating that the government often struggles to disburse funds on time. “The phrase ‘as far as possible’ allows room to explain payment delays,” the official said.Contractors, however, have criticised the decision. R Manjunath, president of the Karnataka State Contractors Association, remarked that the 60-day clause was rarely adhered to in practice. “We regularly had to sue the government and claim interest on delayed payments,” he noted.In addition to facing delayed payments, contractors undertaking works worth more than Rs 10 million but less than Rs 1 billion remain liable for liquidated damages if project progress falls short. Manjunath pointed out that delays are often caused by ground conditions or postponed ground-breaking events due to political factors.The policy revision is likely to aggravate the already strained relationship between the state and its contractors, potentially impacting the pace and efficiency of public infrastructure works across Karnataka.

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