Running Contract

A Running Contract is a standing government procurement arrangement under which the buyer places an initial order for a product or service category and then draws supplies or services periodically throughout the contract period, with payment made against each delivery rather than a single upfront order.

What is a Running Contract?

A Running Contract combines the price certainty of a Rate Contract with a firm minimum commitment from the buyer. The government enters a running contract for a defined quantity range (minimum and maximum) at agreed unit rates, and then draws down the supply in batches according to operational need. This is common for consumable materials, fuel, printed forms, cleaning supplies, and catering services where the government knows approximately how much it needs annually but cannot predict exact monthly requirements.

Running contracts are used by hospitals for medicines and consumables, by defence for rations and clothing, by government offices for cleaning and security services, and by infrastructure agencies for construction materials. The vendor is required to supply on demand within the contracted quantity range and at the contracted price. Unlike a rate contract where orders can come from any department, a running contract is typically held by a specific department or institution.

In Indian government procurement, the term "running contract" sometimes overlaps with "rate contract" and "framework agreement" depending on the procuring entity's usage. The defining feature is the draw-down mechanism: the total order quantity is fulfilled in multiple smaller instalments throughout the contract period.

Why Running Contract matters for Indian government suppliers

Running contracts provide predictable demand over 12-24 months with defined price certainty. Vendors can plan production and inventory based on the contracted minimum quantity. The risk of over-supply is limited because orders are placed as needed up to the contracted maximum. Winning a running contract in a high-consumption category (hospital supplies, security services, printing) provides a stable revenue base for the contract period.

Example

A central government hospital enters a running contract with a pharmaceutical supplier for 50 essential medicines at defined rates for one year, with a minimum commitment of 60% of the estimated annual consumption and a maximum of 130%. The hospital's pharmacy issues purchase orders monthly, some months requiring more supply for epidemic-season medicines, some months less. Total supply over the year reaches 85% of the estimated consumption. The vendor invoices and is paid for each delivery at the contracted rate.

Frequently Asked Questions

How does a Running Contract differ from a Rate Contract?

In a rate contract, there is no minimum commitment, the government can order from zero to any quantity at the contracted rate. In a running contract, the government commits to ordering at least a minimum quantity (e.g., 60% of estimated consumption), giving the vendor firmer revenue assurance. This minimum commitment justifies the vendor offering better pricing than they might for a pure rate contract.

What happens if the government's actual requirement is below the contracted minimum?

If the government consistently orders below the contracted minimum in a running contract, the vendor may claim compensation for the shortfall, depending on contract terms. Government entities usually build this risk into the minimum commitment percentage, setting it at 60-70% of estimated need rather than 100%, to manage demand uncertainty.

Can a running contract be for services as well as goods?

Yes. Running contracts for services are common for security services, housekeeping, catering, and printing where the service is continuous and call-off volumes vary month to month. The contract fixes the unit rate (per guard-hour, per meal, per 1,000 pages) and the government draws service as needed within the contracted range.

Is tender mandatory for every running contract?

Yes. Running contracts above the procurement threshold must be established through competitive tendering, NIT, bid submission, and L1 determination. Individual draw-down orders (purchase orders against the running contract) do not require fresh tendering; they are placed directly against the established contract by the competent officer.