Audit objections are frequently raised after award and execution of public contracts. They can trigger demands for repayment or recalculation of amounts that were priced and agreed at tender stage. Recent matters in large infrastructure procurement illustrate the legal position: the Public Procurement Rules 2004 require procuring agencies to issue precise and unambiguous bidding documents, and once a contract is awarded on that basis, the agreed terms govern the parties’ rights and obligations. Attempts to re-open price adjustment inputs or to substitute a different basis after execution cut across the statutory scheme for transparent and competitive procurement.
In practice, disputes often arise concerning the price adjustment clause and its inputs. Where the bidding documents and the signed agreement specify the indices and weightages to be applied, these instruments form part of the contract documents and operate according to the agreed order of precedence. The appendices to the bid are not collateral; they are binding components of the contract and sit within the hierarchy defined in the agreement. Any post-award attempt to replace the agreed indices with a different set would constitute a retrospective modification of the pricing formula and is not supported by the contract framework.
Pakistani jurisprudence has consistently treated audit objections as internal matters between the procuring entity and its auditors. They do not, without more, create enforceable obligations against a contractor or justify non-payment where the contract terms have been met. In Mehmood Textile Mills Ltd v. MEPCO (2014 MLD 1253), the Lahore High Court addressed withheld invoice payments that the procuring entity attributed to audit objections. The Court held that payment had to be made in accordance with the contract, characterizing the audit issue as internal to the procuring entity and not a ground to delay or refuse contractual payment.
Earlier authority points in the same direction. In WAPDA v. Umaid Khan (1988 CLC 501), the Court rejected an additional recovery sought after performance on the basis of an audit report. The judgment states clearly that an audit affair is a matter between the entity and its audit department and cannot make the respondent liable or create an agreement imposing new payment obligations.
Likewise, in a construction case reported as 2007 YLR 285, the Court declined to permit recovery based on a subsequent audit para once the work had been executed and payment made in accordance with the contract. The Court treated the audit as internal and not a basis to re-write the bargain or claw back sums that had been due under the agreed terms.
These decisions align with procurement fundamentals. The tender package establishes the commercial rules on which bidders base their pricing and expectations, and the contract then fixes those rules for its duration. Where the documents specify how price movements are to be measured and which indices are to be used, both the procuring agency and the contractor are required to apply that mechanism. The contract’s order-of-precedence clause gives certainty when documents are read together and preserves the integrity of the agreed formula. A later audit query that favors a different basis is not a contractual amendment and does not, by itself, supply grounds to recalculate past payments or to withhold sums that are otherwise payable.
For procuring agencies, the practical message is to lock precision at the bidding stage and to administer price adjustment strictly in accordance with the contract. If a different methodology is desired for future procurements, it should be implemented prospectively through the bidding documents rather than introduced after award. For contractors, it is important to keep a clear contemporaneous record of the indices and weightages applied, the contractual hierarchy relied upon, and the payment certifications issued during performance. Where an audit raises a post-award challenge that departs from the agreed mechanism, the authorities recognize that such objections are not a basis to unilaterally vary the contract or to impose new liabilities.
Our Projects, Energy & Infrastructure team comprising of Ahmed Reza Mirza and Khadeeja Ahmad advises both public bodies and private contractors on PPRA-compliant drafting, administration of price adjustment clauses, and the handling of audit queries and recoveries. Where audit objections arise after award, careful reference back to the bidding documents, the order-of-precedence clause, and the payment mechanism provides a sound platform for resolution grounded in the contract and supported by the case law noted above.
