The Defence Procurement Manual 2025 halves the cap on liquidated damages until the inexcusable delay passes a quarter of the total delivery period

The Defence Procurement Manual 2025 came into force on 1 November 2025 for revenue procurement by the Ministry of Defence and the Services. Liquidated damages for late delivery still run at 0.5 per cent of the price a week, but the ceiling is now 5 per cent, rising to 10 per cent only where the inexcusable delay exceeds one-fourth of the total delivery period. On a development contract for an indigenised item the clause is waived until the prototype is developed, and afterwards, where it is included at all, the rate is 0.1 per cent a week.

This note states the Manual as issued.

What changed, and from when?

The Raksha Mantri approved the Manual on 14 September 2025 and released it on 23 October 2025. Paragraph 1.1.2 brings it into force with effect from 1 November 2025, and says it is laid down in terms of Rule 142 of the General Financial Rules, 2017. It replaces the Defence Procurement Manual 2009, which had governed revenue procurement since 1 April 2009.

The scope is set by paragraph 1.2.1. The Manual applies to the wings of the Ministry, the Defence Services, the Indian Coast Guard and the Jammu and Kashmir Light Infantry, down to units at every level, and covers goods and services classified as revenue expenditure, other than entitled rations, works and land. A capital acquisition falls outside it, except medical equipment bought under the capital budget head, which paragraph 1.2.2(a) brings in. The Defence Research and Development Organisation and the Defence Public Sector Undertakings continue to follow their own procurement procedures.

The transition is in two places. Paragraph 1.1.3 says that ongoing cases in which a request for proposal has already been issued may continue to be regulated by the 2009 Manual as amended. The release of 23 October 2025 is more specific: a request for proposal issued after 1 November 2025 is governed by the 2025 Manual, one issued up to 31 October 2025 stays under the 2009 Manual as amended up to date, and one that was issued earlier but is retracted and reissued on or after 1 November 2025 moves to the 2025 Manual.

The date of the request for proposal therefore decides which clause a supplier signs. Paragraph 6.13.1 adds that no deviation from, or deletion of, a standard condition of contract is allowed, and that a deviation pressed by the seller needs the approval of the Raksha Mantri after a legal opinion. Liquidated damages sit in paragraph 6.15, inside the run of standard conditions that paragraph 6.13.2 lists from 6.14 to 6.24. The clause is not, in the ordinary case, open to negotiation.

What does paragraph 6.15 now say?

Paragraph 6.15.1 defines liquidated damages as pre-estimated and mutually agreed compensation for loss on account of late delivery, and records that no actual loss need be established.

Paragraph 6.15.2 sets the quantum in three parts.

• Sub-paragraph (a) is the general rule. Where the vendor fails to supply, perform services, conduct trials, install equipment, or carry out training and MET as scheduled, the competent financial authority may recover 0.5 per cent of the price of what was not delivered in time, for each week or part of a week. The total may not exceed 5 per cent. Extensions for delay attributable to the buyer, or under the force majeure clause, are factored into the delivery period.
• Sub-paragraph (b) raises the maximum to 10 per cent of the price of what was supplied with delay, in a case of inordinate delay.
• Sub-paragraph (c) defines inordinate delay: inexcusable delay of more than one-fourth, or 25 per cent, of the total delivery period.

The price is wide. It is the total cost including GST, freight or transportation, and variations such as price variation and exchange rate variation, and Note 3 confirms that where a variation clause operates, the damages run on the value as varied.

Note 1 limits the clause to delayed supplies. Where nothing has been supplied and the contract is cancelled, only the loss occasioned can be recovered, even if extensions were granted with liquidated damages reserved.

The table in paragraph 6.15.3 allocates the delay. Where the seller caused all of it, full damages are levied up to the 5 or 10 per cent ceiling. Where it caused part, full damages run for that part and may be waived for the rest. Where none of it was the seller's doing, damages may be waived in full. Paragraph 6.15.4 gives the decision to impose or waive to the competent financial authority, in consultation with the integrated financial adviser wherever that adviser's concurrence was required.

Paragraph 6.15.6, a special condition, caps the contractor's aggregate liability at the total contract price, except for criminal negligence or wilful misconduct, the cost of repairing or replacing defective equipment, and an indemnity for infringement of intellectual property.

How does the arithmetic run?

Under the 2009 Manual as first issued, paragraph 7.10.2 set the same weekly rate of 0.5 per cent and a single ceiling of 10 per cent of undelivered goods. The rate is unchanged in 2025. What changed is that the ceiling now has two steps, and which one applies turns on how long the inexcusable delay runs against the total delivery period.

At 0.5 per cent a week, the 5 per cent ceiling is reached after ten weeks of delay. It binds only if the delay is longer than ten weeks but still not more than one-fourth of the delivery period. That is possible only on a delivery period longer than 40 weeks. On a shorter one, the delay becomes inordinate before the 5 per cent ceiling is reached, and the 10 per cent ceiling is the one that matters.

An illustration. The figures below are hypothetical. The rates and thresholds are those in paragraphs 6.15.2 and 10.18.1(a).

A contract with a delivery period of 104 weeks
  Total cost of the stores delivered late (illustrative)    INR 20 crore
  Inordinate delay threshold, one-fourth of 104 weeks       26 weeks

General rule, 0.5 per cent a week
  16 weeks late: 8 per cent, capped at 5 per cent           INR 1 crore
  26 weeks late: not inordinate, still capped at 5 per cent INR 1 crore
  27 weeks late: inordinate, capped at 10 per cent          INR 2 crore

Same delays under the 2009 Manual as first issued
  16 weeks late: 8 per cent, within the 10 per cent cap     INR 1.6 crore
  26 weeks late: 13 per cent, capped at 10 per cent         INR 2 crore

Indigenised item after the prototype, 0.1 per cent a week
  26 weeks late: 2.6 per cent                               INR 52 lakh
  27 weeks late: 2.7 per cent                               INR 54 lakh

A contract with a delivery period of 12 weeks (same illustrative INR 20 crore)
  Inordinate delay threshold                                3 weeks
  12 weeks late: 6 per cent, inordinate, within 10 per cent INR 1.2 crore

Two features follow from the text. A week is counted whole, so a delay of sixteen weeks and a day is seventeen weeks. And on a long contract the step from the lower ceiling to the higher one is a cliff: on the illustration, the 27th week of inexcusable delay moves the exposure from INR 1 crore to INR 2 crore. On the indigenised rate there is no cliff in practice, because 0.1 per cent a week does not reach 5 per cent until the fiftieth week.

What changes for development contracts?

Chapter 10 of the 2025 Manual is the new chapter on self-reliance through innovation and indigenisation. Paragraph 10.5.2 sorts development contracts into three categories: indigenous substitution where the design is available, indigenous substitution where it is not, and sustenance and repair know-how. Paragraph 10.6 opens the first category to Indian vendors without the ownership and control conditions, and the other two only to Indian vendors who meet them. Paragraph 10.7 requires at least 50 per cent indigenous content.

Under paragraph 10.18.1(a), the liquidated damages clause is waived, and is not mandatory, in the development stage or until the prototype is developed. After that it is included only where deemed necessary, for supplies made after successful development, at 0.1 per cent a week or part of a week, subject to the same 5 and 10 per cent ceilings. The earnest money deposit is not mandatory (clause (b)). A performance bank guarantee is due only after the prototype has been certified, trialled and delivered (clause (d)).

On orders, clause (f) allows all later procurement to be made from the developer for an additional period of up to five years beyond the initial order quantity, where the requirement is anticipated and no alternative source exists. Those orders are not treated as single vendor cases, and only a commercial request for proposal is issued. The price for that period must be fixed in the development contract and the provision stated upfront in the request for proposal.

What remains unsettled?

A request for proposal dated 1 November 2025. The release speaks of proposals issued "after" 1 November 2025 and "upto" 31 October 2025, which leaves the day itself in neither group. Paragraph 1.1.2 brings the Manual into force with effect from 1 November 2025, and paragraph 1.1.3 preserves the 2009 Manual only for proposals already issued. Our position is that, read together, the Manual's own text places a proposal issued that day under the 2025 Manual.

What counts as inexcusable. Paragraph 6.15.2(c) measures only inexcusable delay against the delivery period, and does not define the word. Nor does it say whether the delivery period is the original one or the one extended for buyer delay or force majeure under sub-paragraph (a). The answer moves the 25 per cent threshold, and with it the ceiling.

Whether the rate runs from the first week once the delay is inordinate. The text raises the maximum deduction to 10 per cent and leaves the weekly rate as it was. The illustration reads it that way, so that 27 weeks yield 13.5 per cent before the cap. The Manual does not state it in terms.

The scope of the indigenisation rate. The 0.1 per cent figure applies, under paragraph 10.18.1(a), only to development contracts in the categories of paragraph 10.5.2, and only where the authority deems the clause necessary at all. The release of 23 October 2025 describes it more broadly, as the rate in case of indigenisation. The Manual is the text that binds.

The length of assured orders. The release of 14 September 2025 describes a guarantee of orders for up to five years and up to another five in special circumstances. The Manual builds the first five from the initial order quantity, which paragraph 10.10.1(c)(ii) allows, as one of three bases, to cover a requirement of up to five years. The second five come from paragraph 10.18.1(f), on two conditions: that the requirement is anticipated and that no alternative source is available or developed. The Manual does not use the words special circumstances, and the two conditions are the only test it states.

And the ceiling is a ceiling. Paragraph 6.15.1(e) itself records that, under the Indian Contract Act, 1872, a court is not bound to award more than reasonable compensation not exceeding the sum named. The 5 and 10 per cent figures fix the most that may be recovered, not what is due on every delay.