India: Public Procurement: India – ‘Best Practices’

Last Updated: 16 December 2009
Article by Sumeet Kachwaha

Introduction:

The Constitution of India inter alia enshrines certain 'Fundamental Rights' which are available and enforceable against the State. The expression 'State' is widely defined (including PSU's). The State and Parliament respectively cannot act or pass any law contrary to or in violation of Fundamental Rights which would result in unequal or discriminatory or arbitrary treatment and unlike a private entity, the State is accountable. This is the foundation of India's public procurement policy. This Chapter presents the best practices evolved and prescribed in India in matters of public procurement.

I. Role of the judiciary in shaping public procurement policy of India:

India's independent and robust judiciary is to be credited for a transparent and fair mechanism for public procurement and for formulating the principles on which Indian public procurement laws and policies rest. In a leading case, Erusian Equipment and Chemicals v. State of West Bengal1, the Supreme Court laid the foundation of the law by emphasising on the entitlement to equal treatment with others who offer tender or quotations for the purchase of goods and further reiterated that the activities of the Government have a public element and, therefore, there should be fairness in procedure and equality. Thus, the Government cannot act in a whimsical or capricious manner, nor can it act as a private giver may. Its procurement polices must be informed by reason, be fair, transparent, non-discriminatory and non-arbitrary, and it is the courts which would safeguard any transgression of the same.

II. Mandates of the Government through written manuals / directives:

1.1 In August 2006, the Central Government through the Ministry of Finance carried out a detailed exercise and issued three Manuals to serve as Guidelines to Government Ministries/Departments providing for procurement of Goods, Works and Services as well as consolidated policy decisions to promote transparency, competition, fairness and to eliminate arbitrariness issued by the Government from time to time. They can be supplemented / detailed as may be warranted. Some of the important measures to achieve the corner stone of the Governmental policy are:

  1. The tender document should be user-friendly, self-contained and unambiguous. Terminology used should be such as in common parlance in the industry. The eligibility criteria (past performance, financial position, technical capability etc.) should be specified. Similarly the procedure for preparing and submitting the tenders; deadline for submission; date, time and place for public opening of tenders; parameters for determining responsiveness; tenders evaluating and ranking of tenders and criteria for acceptance should be incorporated in the tender documents in clear terms. Any condition which was not incorporated in the tender document should not be brought into consideration while evaluating the tenders.
  2. The tenderer must have a reasonable opportunity to question the tender conditions and / or rejection of its tender and are not permitted to alter or modify the tenders after expiry of the deadline for receipt of tenders. Negotiation with tenderers is severely discouraged. The name of the successful tenderer should be properly notified and informed to the general public also.

To achieve the objective of efficiency, economy and accountability in the system the Manuals state that inter alia, the following key areas should be taken care of:

  1. Government should prescribe appropriate time frame for each stage of procurement delineating responsibility to officials and agencies involved in the purchase process.
  2. Every effort should be made to conclude the contract within the original validity of the tenders without the need for extension.

2.1 Towards the aforesaid objectives, the Manuals prescribe the following rules / directives;

2.2 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. It must be issued in the Indian Trade Journal (published by the Government), in a national newspaper having wide circulation and should also be published in the website of the organisation. A global tender requires the tender notice to be sent to the concerned foreign embassies requesting them to give wide publicity and should also be posted at embassy websites. The exception to the general rule of advertisement lie when the demand is certified urgent by the competent authority in the organisation then the nature of the urgency and reasons why it could not be anticipated earlier should be stated, reasons are given as to why it will not be in public interest to procure the goods or services through advertised tender enquiry; and lastly when 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 simultaneous communication.

3.1 Tenders should be received either through a tender drop box or hand delivered to the nominated officials. Elaborate provisions have been made as to the locking and opening of the tender box and entry of all tender details etc. in registers, duly signed, numbered and initialled by the authorised officials thus ensuring transparency. Each page of the price schedule shall also be initialled along with date. All tenders received in time shall be opened in the presence of at least two authorised representatives of the tenderers whilst announcing the salient features of the tender at the designated date, time and place immediately after the deadline of receipts with minimum time gap in between.

4.1 For purchasing capital equipment, high value plant, machinery etc. of complex and technical nature the tenderers should be asked to bifurcate their quotation in two parts (i.e. two bid system). The first Part in the tender enquiry is to contain the relevant technical specifications and allied commercial details ("Technical Bid") and the second which would only be opened for further scrutiny after the technical offers are accepted should contain only the price quotation ("Financial Bid"). Both the bids should be sealed in separate covers and put in a bigger cover, all duly super-scribed.

5.1 All aspects which are to take into account for evaluating the tender, including the method to be adopted for determining the (L1), are to be incorporated in the tender enquiry in a clear manner without any ambiguity. Preliminary examination is the first step to see whether they meet the basic requirements of the tender and those which do not are to be treated as unresponsive and ignored. Factors rendering a tender to be unresponsive include non-signature, ineligibility of the tenderer, earnest money deposit condition has not been met, the tenderer has not agreed to some essential condition (payment term, liquidated damage clause, warranty clause, dispute resolution mechanism, applicable laws or any other condition having a significant bearing on the cost/ utility / performance of the required goods or services etc.). Any irregularity including immaterial deviation or absence of financial impact during the preliminary examination if found by the purchaser may be waived. The tender will be ignored in the event that there is no confirmation to the minor non-comformity (e.g. certified copy of latest Income Tax Certificate) by the tenderer within a specified date.

5.2 The topic of deviation from tender conditions and the principles on which the deviations may be permitted has been commented upon in a host of decisions by Indian courts. In G.J. Fernandez v. State of Karnataka2, the Supreme Court was concerned with a tender which set forth certain "minimum qualifying requirements" and also went on to require some documents "along with the application for issue of tender documents". The court held that if the tendering authority had in its wisdom decided to relax some non-essential or ancillary conditions or to grant extra time for furnishing the same, that would not by itself render its conduct objectionable or the bids received consequent to such deviation bad.. It held that such deviations (if made) should not result in arbitrariness or discrimination or substantial prejudice to any of the parties involved or to the public interest in general. In another Supreme Court decision - M/s. Poddar Steel Corporation v. Ganesh Engineering Works & Ors,3 the court was concerned with a situation where the tender conditions required an earnest money deposit by way of banker's cheque from the State Bank of India. The tenderer instead enclosed a banker's cheque from the Union Bank of India. The Court held that this deviation could be waived by the tendering authority.To a similar effect is another Supreme Court decision in Raunaq International Limited v. I.V.R. Construction Ltd. & Ors.4, where the Court held that if the tender condition permits relaxation and it is granted for bona fide purposes then the court should hesitate to intervene. The Manual lays down the following general rules and certain instances to address non-conformity in figures and words and in such cases the tenderer is to be intimated and if it does not agree with the corrections within the stipulated time the tender is liable to be ignored:

  1. The unit price shall prevail over the total price in case of discrepancy (unless in the opinion of the purchaser there is an obvious misplacement on the decimal point in the unit price). Similarly, the sub-totals shall prevail over the total in the event of any discrepancy. If there is a discrepancy between words and figures, the amount in words shall prevail over the figures.

6.1 All the quoted prices in the tender are to be converted into a uniform currency i.e. into Indian rupees as per the selling exchange rate established by the Reserve Bank of India as prevailing on a particular date to be specified in the tender enquiry (generally it is the date of tender opening). Sometimes besides price, the purchase organization also gives special importance to factors like performance, environmental friendly features, running and maintenance costs etc., which are to be clearly stipulated in the tender enquiry.

7.1 Before accepting the L1 reasonability of price is crucial and it is tested on factors such as last purchase, and current market price of the same/similar goods, cost analysis (raw material, production cost, overheads, etc). Negotiation can be used strictly only as an exception if L1's price is not reasonable. If all the necessary requirements were not fulfilled by the purchase organisation to ensure more than one responsive tender or sufficient number of tenders then the tender should be reissued / re-floated after rectifying the deficiencies. However, if all aspects were fully taken care of and the quoted price is reasonable the contract may also be placed on that one responsive tenderer.

8.1 In accordance with the principles of natural justice the tenderer shall have a right to be heard and a representation has to be sent to the specified authority within one month from the date of placement of contract and to be responded to by the concerned authority within one month in case it feels that the proper tendering process has not been followed or its tender has been wrongly rejected.

III. Special provisions of infrastructure / PPP Projects:

India has enthusiastically embarked on privatization of infrastructure. PPP Projects as compared to a bid for procurement for Goods or Services involve greater risks, significantly large investment, long term participation and since PPP Projects involve a critical service to the public at large the public interest is at stake. The first stage in the bidding process for PPP Projects is generally referred to as Request for Qualification (RFQ) or Expression of Interest (EOI) and the second sage is generally referred to as Request for Proposal (RFP) or Invitation of Financial Bids. Taking all this into consideration the Government has evolved special procedures and guidelines for procurement of PPP Projects and the same is described below:

Request for Qualification (RFQ): In the RFQ process qualified applicants would be selected and short listed to submit financial bids (in the RFP stage). The objective is to identify credible bidders who have the requisite and financial capacity for undertaking the project. The RFQ document does not require respondents to incur significant expenses in preparing the response so as to not discourage potential investors. The information should be precise and quantified while restricting itself to technical and financial capabilities relevant for the project.

Number of bidders to be pre-qualified &pre-qualification criteria: The PPP Guidelines based on the Governmental policy of maintaining a fine balance between competition and encouraging serious bidders suggests that five bidders be selected for securing high quality bids. (This is also as per international best practice norms). In case the short listing is to be done for 2 or 3 projects simultaneously, the number of short listed bidders could be increased to 7 - 10. A balance regarding eligibility criteria needs to be drawn so that there are a reasonable number of suitable bidders in the zone of consideration for this stage. Hence technical and financial capacities and criteria should be formulated keeping this in mind.

Evaluation criteria at RFQ stage, eligibility of experience and technical evaluation: The technical capacity of the applicant should have acquired capacity in building infrastructure projects of the type required and an experience of 5 years preceding the application is considered. As regards financial capacity, the Applicant should have a minimum net worth equivalent to 25% or more of the estimated capital cost of the project but should not be less than 15% incase the project has an estimated cost of US $ 200 Million or more. As regards eligibility of experience the members of the consortium who clam experience or net worth in the RFQ must hold at least 26% of the consortium's equity. Under technical evaluation the basic approach of the Government is to set the technical parameters leaving sufficient flexibility for bidders to design and engineer the project in a manner that conforms to pre-determined standards and specifications, including service outputs. A feasibility report for assistance of the bidders is also provided but it is not binding on the Government.

Request for Proposal (RFP) stage: This stage is normally restricted to financial offers only which constitute the sole criteria for selection of the bidder and such document should be simple and transparent. The detailed terms of the project that form an integral part of the bid documents are specified in the concession agreement (or in the case of power plants in the power purchase agreement). The Government has developed model RFQ & RFP forms on the principles outlined above5.

IV. Conclusion:

India's public procurement policy seeks to ensure transparency, equality and fairness and that public funds are not squandered or misused. The policy also addresses the issue of corruption and fraudulent practices. A gradual shift towards e-procurement has commenced and it is expected that a policy on the same would be adopted soon.

Footnotes

1. 1975 (1) SCC page 70

2. (1990) 2 SCC 488

3. (1991) 3 SCC 273

4. (1999) 1 SCC 492

5. These model forms can be viewed at: www.infrastructure.gov.in/pdf/model.pdf ; www.infrastructure.gov.in/pdf/RFP.pdf

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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