Delayed Rural Roads, Missing Penalties:  Rs. 7.81 crore in liquidated damages unrecovered in Pradhan Mantri Gram Sadak Yojana projects

A recent audit has flagged serious lapses in contract enforcement by the Rural Development and Panchayati Raj Department (RD&PR) after finding that Rs. 7.81 crore in liquidated damages for delayed rural road projects remains unrecovered from contractors executing works under the Pradhan Mantri Gram Sadak Yojana (PMGSY).
The findings were highlighted in the Audit Report on General, Social, Economic and Revenue Sectors for the year ended 31 March 2023 (Government of Manipur), which contains an audit observation on road works implemented by Programme Implementation Units (PIUs) in Bishnupur and Churachandpur districts covering projects sanctioned between 2013 and 2019.
According to the audit, 32 rural road projects with a combined cost of Rs. 93.38 crore were examined. The works were awarded to various contractors under PMGSY, a flagship rural connectivity programme aimed at providing all-weather road access to rural areas.
The audit found that several of these projects were not completed within the stipulated time, with delays ranging from three weeks to as long as 208 weeksnearly four years.
Under the standard bidding conditions of PMGSY contracts, contractors are liable to pay liquidated damages at the rate of one per cent of the contract value for each week of delay, subject to a maximum of 10 per cent of the contract price.
Based on the delays observed in the execution of the projects, the audit calculated that Rs. 8.58 crore was recoverable from the contractors as liquidated damages.
However, records indicated that the implementing authorities failed to fully enforce the penalty provisions of the contract.
Out of the total amount recoverable, the Programme Implementation Units managed to recover only Rs. 77 lakh as of 14 May 2025.The recovered amount included Rs. 28.59 lakh by PIU-II Bishnupur and Rs. 48.18 lakh by PIU-I Churachandpur.
As a result, Rs. 7.81 crore in liquidated damages remains unrecovered, raising concerns about the effectiveness of contract monitoring and enforcement.
The audit also noted that records produced during the audit did not indicate the reasons for delays in the completion of several projects.
In some cases where penalties were partially recovered, the basis for determining the recovered amount was not documented, making it difficult to verify whether the calculations were made in accordance with the contract conditions.
The report observed that delays in project execution do not automatically absolve contractors from liability to pay penalties, unless liquidated damages are formally waived in accordance with contractual provisions.
During exit meetings with audit officials in January and September 2021, the concerned Executive Engineers reportedly stated that necessary steps would be taken to recover the applicable liquidated damages from the contractors as per the agreement conditions.
Despite this assurance, most of the recoverable amount remained unpaid even years later.
The audit concluded that the failure to impose and recover penalties from defaulting contractors indicated weak internal controls and deficiencies in contract management within the implementing units.
It recommended that the government take necessary steps to recover the liquidated damages in accordance with the contractual provisions to ensure accountability in the execution of public infrastructure projects.
The findings underline the need for stronger monitoring mechanisms and stricter enforcement of contract conditions, particularly in publicly funded schemes intended to improve rural connectivity and development.
In some cases where penalties were partially recovered, the basis for determining the recovered amount was not documented, making it difficult to verify whether the calculations were made in accordance with the contract conditions.
The report observed that delays in project execution do not automatically absolve contractors from liability to pay penalties, unless liquidated damages are formally waived in accordance with contractual provisions.
During exit meetings with audit officials in January and September 2021, the concerned Executive Engineers reportedly stated that necessary steps would be taken to recover the applicable liquidated damages from the contractors as per the agreement conditions.
Despite this assurance, most of the recoverable amount remained unpaid even years later.
The audit concluded that the failure to impose and recover penalties from defaulting contractors indicated weak internal controls and deficiencies in contract management within the implementing units.
It recommended that the government take necessary steps to recover the liquidated damages in accordance with the contractual provisions to ensure accountability in the execution of public infrastructure projects.
The findings underline the need for stronger monitoring mechanisms and stricter enforcement of contract conditions, particularly in publicly funded schemes intended to improve rural connectivity and development.