India: Public Procurement - India

Last Updated: 25 May 2009
Article by Sumeet Kachwaha

This Chapter was first published in Getting the Deal Through Public Procurement 2009 (Global Competition Review)

Legislative framework

1 What is the relevant legislation and who enforces it?

India has a federal constitution, with the responsibility for governance divided between the central and state governments. The Union List, the State List, and the Concurrent List in the Indian Constitution govern the legislative functions of the central, union and state governments. State procurement does not figure in any of the lists as a distinct subject. Under such circumstances the Union Parliament has the exclusive power to make any laws on the subject of procurement. Parliament has not enacted any specific legislation on the subject. Hence Public Procurement is performed through Government policies. The subject is primarily covered by: the General Financial Rules 1963, framed by the Ministry of Finance by executive order, and the Delegation of Financial Powers Rules 1978 (again framed by the said Ministry). Further, the Directorate General of Supplies & Disposals (DGS&D) Manual on Procurement and the Central Vigilance Commission (CVC) Guidelines prescribe the procurement procedure to be followed by all central ministries. In furtherance to these Rules, in August 2006 the Central Government, through the Ministry of Finance carried out a detailed exercise and issued three Manuals providing for procurement of Goods, Works and Services. These Manuals are meant to be guidelines to the Government Ministries / Department / Public Sector Undertakings. They are very detailed in nature.

The state governments generally follow the same procedure as the central government.

The procurement rules are enforced by the respective ministries and departments (ie, the procuring authority in the first instance). Judicial review of administrative action is vested in the high courts. Each state of the union has a high court.

2 In which respect does the relevant legislation supplement the EU procurement directives or the GPA?

India has not acceded to the GPA.

3 Are there proposals to change the legislation?

No. At present there is no bill pending in parliament to bring about any change to the legislation.

4 What is the relevant legislation for the procurement of military equipment?

As part of the implementation of the report of the Group of Ministers on reforming the National Security System, new Defence Procurement Management Structures and Systems were set up in the Ministry of Defence (MoD) order No. SA/01/104/2001, dated 10 September 2001 and No. 17179/2001-Def Secy/IC/2001, dated 11 October 2001. To implement the provisions laid out in the said Defence Procurement Management Structures and Systems, the procedure for defence procurement laid down in MoD ID No. 1(1)/91/PO (Def), dated 28 February 1992 was revised. The Defence Procurement Procedure – 2002 (DPP- 2002) came into effect from 30 December 2002 and was applicable to procurements flowing out of 'Buy' decisions of Defence Acquisition Council (DAC). The scope of the same was enlarged in June 2003 to include procurements flowing out of 'Buy and Make through Imported Transfer of Technology (TOT)' decisions. This procedure was reviewed and DPP – 2005 came into effect from 1 July 2005 and later 2006. The Defence Procurement Procedure – 2006, has been reviewed and revised based on experience gained in implementation and DPP 2008 came into existence with effect from August 2008.

The Defence Procurement Procedure – 2008 provides comprehensive policy guidelines for all capital acquisitions undertaken by the Ministry of Defence, Defence Services, the Indian Coast Guard both from indigenous sources and exports and imports, the Defence Research and Development Organisation (DRDO), and the Ordinance Factory Board (OFB).

Applicability of procurement law

5 Which, or what kinds of, entities have been ruled not to constitute contracting authorities?

The rules governing public procurement are binding only on the State as defined in Article 12 of the Constitution of India. This expression ("State") is widely defined and interpreted to include not only the Government but also agencies and other autonomous bodies directly or indirectly controlled by it. Hence private bodies not under the control of the Government are not bound by the procurement procedures described in Question 1. Further the Constitution of India vide article 299 stipulates that all contracts made by the Union or State shall be expressed to be made in the name of the President of India or the Governor of the State (as the case may be). Accordingly any person who has not been so authorized shall not be competent to be a contracting authority.

6 For which, or what kinds of, entities is the status as a contracting authority in dispute?

This would always be a question of fact in each case. In a series of judgments Indian Courts have laid down tests for determining the status of contracting authority i.e. whether it would be considered to be a "State" or not for the application of procurement procedures.

7 Are there specific domestic rules relating to the calculation of the threshold value of contracts?

The Procurement Rules & Policies mention In Question 1 are applicable for all contracts except those having very low value (generally US $ 500 or below).

8 Does the extension of an existing contract require a new procurement procedure?

The existing contract would not be extended as a matter of routine, and only in exceptional circumstances for reasons to be recorded in writing, with the approval of the competent authority, can the contract be extended. In all other cases, a new Procurement Procedure would have to be undertaken.

9 Does the amendment of an existing contract require a new procurement procedure?

After the conclusion of the contract, any relaxation of the contract terms and specifications is 'severely discouraged'. In exceptional cases, however, where the modifications and amendments are considered to be 'absolutely essential', the same may be allowed after taking into account the corresponding financial implications.

10 May an existing contract be transferred to another supplier or provider without a new procurement procedure?

The existing contract, as a matter of rule, cannot be transferred to another supplier or provider without a new procurement procedure being followed.

11 In which circumstances do privatisations require a procurement procedure?

The Government has evolved special procedures and guidelines for procurement of PPP Projects. The bidding process for PPP Projects has been divided into two stages. The first stage is generally referred to as Request for Qualification (RFQ) or Expression of Interest (EOI). The objective of the first stage is to shortlist eligible bidders for the second stage of the process. The second stage is generally referred to as Request for Proposal (RFP) or Invitation of Financial Bids. Here short listed bidders conduct a comprehensive examination of the project and submit their financial offers.

12 In which circumstances do public–private partnerships (PPPs) require a procurement procedure?

Please see Question 11.

13 What are the rules and requirements for the award of services concessions?

Concession services would need to go through the same procedures as those prescribed in Question 11. There are no separate rules or regulations governing these.

14 What are the rules and requirements for the award of an in-house contract without a procurement procedure?

There is no exemption to public procurement rules and policies and therefore there is no concept of in-house contracts being exempted.

The procurement procedures

15 Does the relevant legislation specifically state or restate the fundamental principles for tender procedures: equal treatment, transparency, competition?

Yes.

16 Does the relevant legislation or case law require the contracting authority to be independent and impartial?

Yes.

17 How are conflicts of interest dealt with?

The general rule prescribed by Courts, as part of the administrative law of India, is that any person having a conflict of interest will not be part of the bid evaluation or award process. More specific provision can be found in the documents created in relation to PPP Projects (see Question 11). The PPP bid document inter alia provides that a bidder shall not have any conflict of interest and if it does, the Authority shall forfeit the bid security or performance security bond as damages (without prejudice to any other right the Authority may have). Conflict of interest is defined to inter alia include:

  • A bidder or its constituent has a common controlling shareholding or other ownership interest.
  • A constituent of a bidder is also a constituent of another bidder.
  • Two bidders have the same legal representations for the purposes of the bid.
  • The bidders have a relationship which puts them in a position to have access to the information of each other or to influence the bid of any bidder.
  • The bidder has participated in preparation of any document, design or technical specification for the project.

Further, most governmental authorities are required to adopt the system of Integrity Pact recommended by Transparency International; this, among other matters, requires that the owner must exclude from the bidding process any known prejudiced person.

18 How is the involvement of a bidder in the preparation of a tender procedure dealt with?

Any involvement of the bidder in the bidding process would lead to disqualification.

19 What is the prevailing type of procurement procedure used by contracting authorities?

The general rule is that any tender above a value of Rs. 25,00,000 (approximately US$ 50,000) must be through invitation by public advertisement. There are three types of tenders: Advertised Tender Enquiry (ATE); Limited Tender Enquiry (LTE) and Single Tender Enquiry (STE). Ordinarily most procurement is conducted through ATE. The advertisement must be issued in the Indian Trade Journal (published by the Government) and additionally in a national newspaper having wide circulation. Further it should also be published in the website of the organisation. In case of global tender, the tender notice should be sent to the concerned foreign embassies requesting them to give wide publicity and also posted at embassy websites.

Exception to the general rule of advertisement are:

  1. Where the competent authority in the concerned organisation certifies that the demand is urgent setting out the nature of urgency and reasons why the need could not be anticipated earlier;
  2. The competent authority sets out reasons why it will not be in public interest to procure the goods or services through advertised tender enquiry;
  3. The sources of supply are definitely known and the feasibility of fresh sources beyond those being tapped are remote.

In such cases a limited tender enquiry can be sent to all firms registered with the organisation or otherwise through the usual means of communication.

20 Are there special rules or requirements determining the conduct of a negotiated procedure?

Post tender negotiations are severely discouraged. This is so specifically stated in Government guidelines (Central Vigilance Commission Guideline dated 3.3.2007). Even L-1 post tender negotiations are not permitted except for reasons to be recorded in writing.

21 When and how may the competitive dialogue be used?

The basic principle is that there shall be no competitive dialogue. In some situations re-tendering may be ordered. This may be if L1s price does not seem to be reasonable and it is not willing to negotiate the same or sufficient number of tenders or responsive tenders have not been obtained.

22 What are the requirements for the conclusion of a framework agreement?

The requirements for the conclusion of a framework agreement are not provided for in the procurement procedure.

23 May several framework agreements be concluded? If yes, does the award
of a contract under the framework agreement require an additional competitive procedure?

As stated above, the procurement legislation does not deal with framework agreements.

24 Under what conditions may consortium members be changed in the course of a procurement procedure?

There is no specific prohibition for change of consortium members in the general procurement legislation. However in PPP documents, there is a restriction for change of consortium members. The same may be permitted by the Authority during the bidding stage where the lead member continues as before and the substitute is at least equal in terms of technical or financial capacity to the member sought to be replaced. Approval for change of composition shall be at the sole discretion of the Authority and the modified / reconstituted consortium shall be required to submit a joint bid agreement before the bid closing date.

25 Are unduly burdensome or risky requirements in tender specifications prohibited?

There is no prohibition regarding unduly burdensome or risky requirements in tender specifications.

26 What are the legal limitations on the discretion of contracting authorities in assessing the qualifications of tenderers?

As a result of the mandate of the Constitution of India, the Government and its agencies cannot treat its people unequally or with discrimination or arbitrarily or unreasonably. It must not waste public money and is accountable to judicial action if it attempts to do so. The tendering authority therefore has to proceed in accordance with the limitations contained in the tender document or in the applicable Manuals or Rules.

27 Are there specific mechanisms to further the participation of small and medium enterprises in the procurement procedure (eg, an obligation to partition awards into lots)?

Certain sectors of industry are reserved for small and medium enterprises (for example specified cottage industries). However in the tendering process there is no mechanism to further the participation of small or medium enterprises.

28 What are the requirements for the admissibility of alternative bids?

Alternative bids will be considered only if permitted by the tender conditions. Otherwise the tender is liable to be rejected.

29 Must a contracting authority take alternative bids into account?

Please see Question 28.

30 What are the consequences if bidders change the tender specifications or submit their own standard terms of business?

Any unilateral change by the bidder may result in the bid being considered unresponsive and being rejected.

If, however, the deviation is a mere technical irregularity or of no significance and if it does not pertain to an essential condition of eligibility, the authorities have discretion to waive the same.

31 What are the award criteria provided for in the relevant legislation?

The general rule is that the tender is awarded to L1. The exceptions are if the price of L1 looks unreasonable and it is not willing to negotiate or if it is considered that the organization has not received a sufficient number of bids or responsive bids. In such situation there can be a re-tender. Otherwise, the tender has to be awarded to L1 without negotiation.

32 What constitutes an 'abnormally low' bid?

'Abnormally low' bids are those that vary from the estimated rates by more than 25 per cent, even after updating the scheduled rates to match the prevailing cost index.

33 What is the required process for dealing with abnormally low tenders?

Abnormally low price may lead to a conclusion of an anti-competition move and this is a ground to order re-tendering. Factors have been prescribed to judge the reasonableness of price (though these are usually resorted to if price is found to be too high (and not abnormally low).

34 How can a bidder, that would have to be excluded from a tender procedure because of past irregularities, regain the status of a suitable and reliable bidder? Is 'self-cleansing' an established and recognised way of regaining reliability?

Under Indian law there is no concept of self-cleansing and nor is there any measure to judge it. Exclusion and the extent thereof, is subject to judicial review (inter alia on the ground of proportionality).

Review proceedings and judicial proceedings

35 Which authorities may rule on review applications?

A tenderer shall have a right to be heard in case it feels that the proper tendering process has not been followed or that its bid has been wrongly rejected. Such representation has to be sent to the specified authority within one month of adverse order and to be responded by the said authority within one month thereof. Save for this, the decision of a contracting authority is final unless challenged before a court of law. Judicial review would lie before the high court of the relevant state. This is in exercise of the writ-issuing powers conferred on the high courts by the Constitution of India. The Indian judiciary is independent and proactive. It has the power to review administrative actions if the same is vitiated by any bias, arbitrariness, unfairness, illegality or if the same is discriminatory or irrational or even grossly unreasonable.

36 How long does a review proceeding or judicial proceeding for review take?

This would vary from case to case. In straightforward cases of violation of constitutional principles, the review procedure may take up to 60 days; in other cases it may take up to two years.

37 What are the admissibility requirements?

The scope for interference in a procurement procedure is limited and the courts, over a period of time, have devised rules under which they may admit a challenge to a tender. The courts would interfere only in cases where the procedure followed is arbitrary, irrational or grossly unreasonable (see question 35) or the procedure prescribed has not been followed.

38 What are the deadlines for a review application and an appeal?

There is no deadline for approaching a court in its writ jurisdiction. However, the courts may decline to interfere if there has been unreasonable delay.

No appeal lies as a matter of right but in cases of public importance or where important questions of law are involved or where the high court decision is grossly erroneous, an appeal would lie to the Supreme Court. The time period for the same is 90 days.

39 Does an application for review have an automatic suspensive effect blocking the continuation of the procurement procedure?

No. Suspension can only be ordered by the court by an interim order. This is granted on consideration of the merits on a prima facie basis and the balance of injury to parties.

40 Must unsuccessful bidders be notified before the contract with the successful bidder is concluded?

No.

41 Is access to the procurement file granted to an applicant?

Information relating to the examination, classification, evaluation and comparison of tenders shall not be disclosed to suppliers or contractors or to any other person not involved officially in the procurement process.

The court under its writ jurisdiction, however, can call for the procurement file but it lies within its discretion to disclose the contents of the same to the parties or not.

42 Is it customary for disadvantaged bidders to file review applications?

Since Indian courts are independent and proactive it is fairly common for disgruntled bidders to seek judicial review.

43 May a contract be cancelled or terminated if the procurement procedure that led to its conclusion violated procurement law?

This would depend upon the facts of the case and discretion of the court. Some times where third party interests have crystallised and public interest is involved, the court may not cancel the contract.

44 Is legal protection available in cases of a de facto award of a contract, namely, an award without any procurement procedure?

Yes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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