CAG pulls up high explosives factory

The failure of the factory to invoke the risk purchase clause coupled with Ordnance Factory Board’s (OFB) failure to allot funds in time to make contractual payments for supplies received foreclosed the possibility of obtaining oleum at economical cost and resulted in an extra expenditure of Rs 2.8 crore,the CAG report no 12 of 2010-’11 says in its chapter VII.

HEF procures oleum to manufacture Trinitrotoluene (TNT),a commonly used explosive for military purposes. The report says HEF had placed an order for 7,432 tonnes of Oleum from Rama Krishi Rasayan Ltd,Pune in April 2007 at a fixed cost of Rs 3,327 a tonne. The firm supplied 3,558 tonnes of oleum till November 2007,with interruption in September and October citing non-payment by HEF against the procured quantity. “The firm claimed Rs 45.07 lakh due up to October 2007,which increased to Rs 48.65 lakh up to November 2007,” the report says.

Subsequently,the firm did not complete the remaining order and HEF procured 4,100 tonnes of oleum under three orders,this time at three different unit costs of Rs 6,732,Rs 10,039 and Rs 16,342. The report says HEF incurred an extra expenditure of Rs 2.80 crore in this.

The risk and expense purchase clause is undertaken by the purchaser,according to Defence Procurement Manual 2009,in the event of the supplier failing to honour the contracted obligations within the stipulated period and where extension of delivery period is not approved. Whenever risk purchase is resorted to,the defaulting supplier has to bear the excess cost incurred as compared with the amount contracted with him.

The report says the HEF did not invoke the clause to enable the recovery of extra expenditure in the purchase of 3,874 tonnes of oleum that the firm refused to supply. It also says the HEF did not refer the matter to arbitration even till October 2009,over two years after the supply stopped. “The firm’s refusal to supply the remaining ordered quantity,citing failure in payments within the time limit could not be effectively countered by HEF as there was an admitted delay in payment due to delay in allotment of funds by OFB. Thus OFB and HEF had made it possible for the firm to dishonour the contractual liability to supply oleum at a time when there was a surge in the price of sulphur,” it says.

HEF officials refused to comment on the matter. A senior official of Rama Krishi Rasayan Ltd said they had received the payments from HEF now. “We are not supplying oleum to HEF any further. We would not want to comment any further.”