The Government in a welfare state is the regulator and provides large number of benefits and dispenses of s
ervices to its people. In the process of dispensing the benefits and services, the Government enters into
contracts i.e. contracts between private individuals,
on the one hand and Government or its instrumentalities on the other.
The constitutional reorganization of Government contracts is to be found in Article 298 and 299(1) of Constitution.
Article 298 provides that the executive power of the union and each state shall extend to the making contracts for any purpose.
So it provides the state can enter into a contract in exercise of its executive power. Article 299(1) mandates the requisite
conditions which contracts in exercise of the executive power of the union each state is required to fulfill. These provisions in the constitution relating to form of contract on behalf of the Government is mandatory. The Government is still the Government when it acts in the matter of grating largesse and it cannot act arbitrarily. It does not stand in the same position as a private individual.
Since the Government no longer enjoys the absolute discretion to enter into contract with anyone the Government must choose the party in a non discriminatory manner.
The state must act fairly and make a choice in the selection of a contracting party by affording equal opportunity to all contenders by examining their claims fairly.
Every activity of the Government has a public element in it and it must, therefore be informed with reason and guided by public interest. Every action taken by the Government must be in public interest.
If it chooses invite tenders, it must abide by the conditions specified in the tender notice. If the party fails to fulfill the conditions of the tender notice, it cannot be accepted.