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The method to prepare unit cost for purchase of material or to do work is known as?
Inquiry based
Tender based
Rate contract
All the above
Rate contract
A 'Rate Contract' is a legal agreement between a purchaser and a supplier where the rate or unit cost of materials or services is fixed for a specified period. This method allows the purchaser to draw supplies as needed without initiating a new tendering process for every individual requirement.
A 'Rate Contract' is a legal agreement between a purchaser and a supplier where the rate or unit cost of materials or services is fixed for a specified period. This method allows the purchaser to draw supplies as needed without initiating a new tendering process for every individual requirement.
TotalCost=тИС(QiтАЛ├ЧRiтАЛ) тАФ where QiтАЛ is quantity and RiтАЛ is the fixed unit rate per contract terms.
The principle relies on price stabilization and inventory efficiency. By fixing rates beforehand, the organization avoids the time-consuming administrative burden of repeated competitive bidding. When a requirement arises, a Purchase Order (PO) is issued directly against the established rate contract, ensuring supply continuity and cost predictability.
Rate contracts are ideal for repetitive or 'off-the-shelf' items.
It significantly reduces administrative lead time compared to individual tendering.
The contract includes terms regarding escalation, delivery schedules, and quality specifications.
Commonly used in large scale engineering departments like Railways or PWD.
Reduction in lead time for procurement.
Price stability throughout the contract period.
Efficient handling of recurring material demands.
Risk of market price fluctuations affecting contract viability.
Requires accurate demand forecasting to avoid overstocking.
Vendor may prioritize other orders if market rates rise significantly.
Procurement of electrical consumables like cables, wires, and switches.
Annual maintenance contracts for industrial machinery.
Supply of bulk raw materials in construction projects.
An inquiry-based method (Option A) is typically used for small value items where quick price comparison is needed without a formal contract.
A tender-based method (Option B) is the primary competitive mechanism used for large, one-time projects or high-value capital assets.
The rate contract sits as a hybrid, maintaining the competitive advantage of tenders while offering the operational ease of direct orders.
C is correct тАФ A rate contract is a pre-negotiated agreement that establishes the unit cost for materials or services over a fixed duration, allowing for streamlined procurement.
In competitive exams, remember that 'Tender' involves a new bidding process each time, whereas 'Rate Contract' uses a pre-existing agreed price to bypass repeated bidding.