MODULE 10
GOVERNMENT PROCUREMENTS
10.1 INTRODUCTION:
Government Procurement in other words is also called public tendering or public procurement.
Government Procurement is the process of purchase of goods and services and technologies by a
government and public entities to fulfill the needs of public authority to carry out its
responsibility towards citizens. Along with the modes of procurement, it is regarded as the
significant activity of a country as around 20% to 30% of Gross Domestic Product (GDP)
comprises of government procurement. Along with the value for money, it seeks to attain the
welfare objectives of a country. The method of procurement requires the procuring authority to
issue public tenders if the value of the procurement exceeds a certain threshold.
It is an indispensable part of government operations for smooth functioning of an economy. The
amount of procurement varies in different countries according to different type of economies.
The factors affecting government procurement are cost of procuring, developmental activities,
value for money, etc.
Government procurement is also the subject of the Agreement on Government Procurement, an
international treaty under the aegis of WTO.
The general principles of government procurement are to:1
Maximize economic efficiency and effectiveness
Encourage competition among the suppliers
Best value of money
Transparency in procurement procedures.
10.2 GOVERNMENT PROCUREMENT IN INDIA:
1 Government Procurement and Contracts: Colin Turnip
Government procurement forms a major part of Indian economy. It is utilized for smooth
operations of governmental operations of governmental agencies, for promoting economic
development. In India, government procurement comprises of about 25%-30% of its GDP. With
proper initiatives for strengthening economic growth and socio economic development it can
foster positive changes in several respects- it can sharpen the evolving competition regime in
India, enhance trade, and ensure better access to essential facilities for its people. But
unfortunately, Indian government procurement lacks transparency and accountability. Besides,
there is lack of awareness on the part of government which leads to under utilization or poor
performance in the system. For example, there is no machinery to adhere to the guidelines as
there is no central law on government procurement. In India, public procurement is an activity
not merely for meeting day to day functional requirement, but also for underpinning various
services that are expected from the government, e.g. infrastructure, national defense and security,
employment generation, economic development.2
10.2.1 USAGE:
The uses of government procurement are as follows:
Promote local manufacturing and production capacities
Set prices in essential goods and services
Prevention of hoarding and speculation
Sub serves socio economic policies of governments through extension of preferences to
disadvantages sectors of the economy.
10.2.2 RATIONALE:
The main purpose of public procurement policy is to obtain best value for money by promoting
competition among suppliers and provide incentives to consolidate the procurement cycle.
Illustration:
Are Dassault Rafale air jets the best procurement for the value of money?
2 Report of the Committee on Public Procurement, appointed by the Government of India, submitted in 2011
Ans: Dassault Rafale met the minimum specifications for defense purpose; French
Rafales flew demonstrations in India, including air-to-air combat against Su-30MKIs.
Indian Air force shortlisted Dassault for its modernity and agility. Therefore it can be said
to be the best procurement. The deal was stalled from disagreements over the fighter
production in India. Dassault refused to take responsibility for the 108 HAL-
manufactured Rafales, as it had reservations about the ability of HAL to accommodate
the complex manufacturing and technology transfers of the aircraft. Instead, Dassault said
it would have to negotiate two separate production contracts by both companies.
The Indian Defence Ministry instead wanted Dassault to be solely responsible for the sale
and delivery of all 126 aircraft. In May 2013, The Times of India reported that
negotiations were "back on track", with plans for the first 18 Rafales to be delivered in
2017.
10.3 CURRENT SENARIO OF INDIA IN GOVERNMENT PROCUREMENT:
But recently of late, India has been marked by massive scams in a variety of sectors. Even
though government procurements form a major part of GDP, yet there is no central law on it.
India’s response was the highest levels in the government contemplated measures for tackling
corruption and the GROUP OF MINISTERS (GOM) on Corruption was set up in 2010-2011.
The GOM, inter alia, recommended the establishment of Committee of Public Procurement Law
and the same was set up having representatives from major procuring departments of the Central
Government. The Committee submitted its report in June, 2011, which inter alia, analyzed the
short comings in the system and recommended the enactment of Public Procurement Law.3
The Central Public Procurement Portal of Government of India facilitates all the Central
Government Organizations to publish their Tender Enquiries, Corrigendum and Award of
Contract details. The system also enables the users to migrate to total electronic procurement
mode.
3 Government Procurement in India: Domestic Regulation and Trade prospects.
The primary objective of this portal is to provide a single point access to the information on
procurements made across various central government organizations.
In 2010, India attained the status of ‘observer’ of the Agreement on Government Procurement of
the World Trade Organization. Not all members of WTO are part of it but it includes almost all
major trading partners of India.
As mentioned above, government procurement in India has no central law governing it. At
present, it is governed by rules and instructions contained in the General Financial Rules
(GFR)[here in after] and the Delegation of Financial Power Rules (DFPR), apart from ministries
of Defense, Railways, Public Works, and the Directorate General of Supplies and Disposals.
Government Procurement Procedure is dealt by administrative rules and bureaucracy. Therefore
it lacks adequate force of law due to which certain corrupt practices go unnoticed and
unpunished. Consequently the aggrieved suppliers affected by malpractices are deterred to move
to civil courts due to its bureaucracy.
Yet few changes have occurred due to emergence of international agreements and instruments:
Development of consumer protection law
World Bank stipulated certain procurement practices
International instruments like UNICITRAL Model Law of Public Procurement, the
OECD Integrity in Public Procurement
Ratification of the Agreement on GPA (Government Procurement Agreement) by some
WTO members
Ratification of the UN Convention against Corruption (UNCAC) 2005.
It becomes imperative to view government procurement from global perspective as it is an
important aspect of international trade. And while integrating government procurement with
international level, certain issues are raised. They are as follows:
Whether the present legal structure on government procurement needs reform?
Whether the public procurement process and framework can be affected by the
challenges of the WTO agreements of dispute resolutions?
Whether there is a need for new legislative law to address this sector?
What laws are affected by the government procurement deals?
Whether the process of procurement needs better transparency and accountability to
reduce corrupt practices.
It is about understanding government procurement in the light of good governance and market
accessibility.
10.4 OBJECTIVES OF GOVERNMENT PROCUREMENT4:
The key objectives of Government Procurement are as follows:
VALUE FOR MONEY IN PROCURING GOODS, SERVICES AND
TECHNOLOGIES: The key objective is efficiency of money while procuring goods in
exchange. The provider who is supplying should be identified. The acquisition should be
economical. There should not be any over specification.For example, The Scorpene
submarine contract with France apparently also provided for Indian acquisition of critical
underwater missile-launch technology. Mazagon Docks Limited, Mumbai was identified
as the yard to ultimately construct French designed Scorpene Submarines on successful
completion of negotiations with the French Company.
RETAINING INTEGRITY: Fulfilling the terms of the contract without nepotism, red
tape, influence should be the priority of procurement process. Corruption is the imminent
possibility in the execution as well as in award of contracts. For example, the
2GScam involving politicians and government officials in India illegally
undercharging mobile telephone companies for frequency allocation licenses, which they
would then use to create 2G spectrum subscriptions for cell phones. The shortfall
4 Adopted from Arrowsmith, Sue, Steene Trumner, Jens Fajo and Lili Jiang (2010), Public Procurement: An
Introduction, The EU Asia Inter university Network for Research and training, University of Notthingham, UK.
between the money collected and the money that the law mandated to be collected is
estimated to be 1766.45 billion (US$30 billion), as valued by the Comptroller and
Auditor General of India based on 3G and BWA spectrum auction prices in 2010.
TRANSPARENCY: Since it is an administrative process, it requires accountability and
transparency because the parties and the general public need to know if the objective of
procurement is fulfilled or not. For example, the Right to Information Act (RTI) can be
resorted to. But in case of defense procurement RTI cannot be resorted to. An illustration
for it is the Augusta scandal. It resulted from the discovery that the aviation
firms Agusta and Dassault had bribed various Belgian office holders in 1988 in order to
secure a large order of Agusta A109 helicopters from the Belgian Army. An official
investigation is held in case of defense purpose.
EQUAL OPPORTUNITIES AND EQUAL TREATMENT OF SUPPLIERS:
Healthy sense of competition should be flourished among the suppliers by giving them
equal opportunities.
FAIR TREATMENT OF SUPPLIERS: This refers to the procedural fairness and is
based on principles of natural justice. In case of dispute, due process of justice should be
adhered to. For example, following the manual on government procurement by
Directorate General of Supplies & Disposals. In certain cases there had been scandal and
all the tenderers are not treated fairly, an example for it is the Indian helicopters bribery
case where several Indian politicians and military officials have been accused of
accepting bribes from AgustaWestland in order to win the 36 billion(US$600 million)
Indian contract for the supply of 12 AgustaWestland AW101 helicopters; these
helicopters are intended to perform VVIP duties for the President of India and other
important state officials.
EFFICIENT IMPLEMENTATION OF HORIZONTAL POLICIES IN
PROCUREMENT: It seeks to create gainful employment opportunities and economic
development. It is important to train and disseminate information, thereby increasing the
participation of micro, small and medium enterprises and enhancing value for money.
This improves their accessibility to the procurement process though it is often touted to
involve trade-off with other objectives. For example, awareness through the manual on
government procurement, and other incentives by the government which include
preferential treatment to micro, small and medium enterprises.
OPENING UP OF MARKETS FOR INTERNATIONL TRADE: The raison d’être of
free trade, which has gained momentum in the past three decades, is that opening of
markets to foreign competition increases economic welfare of a country. The Ricardian
theory of comparative advantage argues that countries need to specialize in those areas in
which they have comparative advantage. This will result in most efficient use of
resources and appropriate utilization of wealth. For example, if India is efficient in
production of wheat as well as rice in comparison to Bangladesh, both countries will still
gain by procuring from each other, as long as they have different relative efficiencies.
10.5 ELEMENTS OF GOVERNMENT PROCUREMENT:
Government procurement in India has to be looked at from the international perspective due to
globalization and widening of economy. The existence and well functioning of administrative
hierarchy is pioneer for the success of the procurement process.
10.5.1 ORGANIZATION STRUCTURE:
There is no central legislation governing procurement in India. Comprehensive rules and
directives in this regard are contained in the General Financial Rules (GFR) 2005 and Delegation
of Financial Powers Rules (DFPR) 1978, issued by the Department of Expenditure in the
Ministry of Finance, The Directorate General of Supplies & Disposals (DGS&D) has its own
manual of procurement, and Central Vigilance Commission (CVC) prescribes guidelines to be
followed by all central entities. Other laws which affect Government procurement are
The Contracts Act 18725,
5 No. 9 of 1872.
The Sale of Goods Act, 19306,
The Law on Arbitration7 ,
The Limitation Act8, 1963
Right to Information Act, 2005,
Information Technology Act 2000,
The Prevention of Corruption Act 1988, and
The Competition Act, 2002 (where the competition issues are involved)
Foreign Exchange Management Act, 1999
The Negotiable Instruments Act, 1881
Each state has its own procurement legislations. State government and Central Public Sector
Units have their own financial rules, which are based on the broad principles outlined in GFR.
Tamil Nadu and Karnataka has even introduced legislation for procurement
The constitutionally appointed Comptroller and Auditor General (CAG) keep track of the
accounts of the Union and states. The reports of the CAG on Union accounts are presented to
each house of the Indian Parliament, while those relating to the accounts of the states are
presented to the legislature of each state assembly. 9 These reports also cover procurement. The
Parliamentary Accounts Committee (PAC), the Standing Committees and the Legislative
Accounts Committees in the states oversee the functioning of the executive power. To ensure
transparency in the process at each level of the Indian Government, a local fund audit for local
bodies has been established. Reports on the audits are presented to each state legislative
assembly.
The public procurement in India is governed by the following laws:
10.5.2 GENERAL FINANCIAL RULES:
6 No. 3 of 1930.
7 The Arbitration and Conciliation Act, No. 36 of 1996.
8 The Limitation Act, No. 36 of 1963.
9 The Constitution of India- Article 148-151.
The legal structure for procurement in India is derived from the Constitution of India. The
Constitution vests the executive powers of the Union of India in the President of India.10 The
President, by decree, vested the financial powers of the Indian Government in the Ministry of
Finance. In turn, these powers were vested to the subordinated authorities under the 1947
General Financial Rules, which was amended in 200511 and after the 2018 amendment the
scenario changed and the power to approve change in financial year i.e from April to March
which comes under section 2(41) in Companies Act was transferred to Central Government.
from NCLT.
The General Financial Rules (GFR), developed by the Ministry of Finance, contains the
principles for general financial management and procedures for government procurement. The
rules contained in chapter 6 talks about the procurement of goods and services, while chapter 8
deals with contract management. It is the law that all government procurements should strictly
adhere to the principles structured in the GFRs. The Manual on Policies and Procedures for
Purchase of Goods contains guidelines for the purchase of goods and services.
The Rule 137 of General Financial Rules, 2005 laid down the fundamental principles of public
buying. It says that every authority is delegated with the financial powers of procuring goods
shall be responsible to bring transparency, economy, and efficiency. The procedure to be
followed should not be biased; it should be clear and precise. The procuring authority should
make sure that that the price is reasonable and consistent; it should be satisfied that the selected
offer adequately meets the requirement in all respects.
The provisions of GFRs are to be followed by all the Government of India offices while dealing
with matters of financial nature. The GFR was amended in 2005. The GFRs 2005 provide
guidelines to which the procedures adopted by the procuring agencies must conform. Ministries
or Departments that procure are free to set out their own procedures provided that conforms to
the GRFs.
10 The Constitution of India – Article 53.
11 General Financial Rules, 2005.
Depending upon the value of the goods, the GFR provides for specific tendering norms, which
are as follows:
Purchase without quotation: These can be authorized up to the value of 15000
rupees on each occasion.
Purchase by Purchase Committee: Purchase between rupees 15,000- 100,000
may be authorized on the recommendation of a local Purchase Committee. The
committee will survey the market; ascertain the reasonableness of rate, quality
and specifications while identifying the appropriate supplier.
Purchase through tender: For Purchase of goods above 100,000 GFR prescribes
procurement trough bids
Ø Open Tender: For procuring goods of the value 25,00,000 and above,
invitation of tenders by advertisement is required. The advertisement
should be published in Indian Trade General and in at least one national
daily and also in the website of the department.
Ø Limited Tender: For procuring goods below the value of 25,00,000,
limited tender mode, i.e. sending copies of the bid documents to at least
three registered suppliers can be adopted.
Procurement of goods financed by Loans/Grants extended by International
Agencies: The terms of agreement with the International Agencies, like the World
Bank, Asian Development Bank, etc., stipulate specific procurement procedure to
be adhered to by the borrowers.
Two Bid systems: In case of purchase of capital equipments or plant and
machinery, the tenderer is supposed to divide their quotations in two parts. The
first part is ‘Technical Bid’, it contain the relevant technical specifications. The
second part is ‘Financial Bid’, it contains the price quotation.
10.5.3 THE DIRECTORATE GENERAL OF SUPPLIES & DISPOSALS:
The role of DGS&D is now limited to procuring items of common use by many ministries (Rule
140 GFR, 2005). DGS&D maintain lists of suppliers and consultants and finalizes the rate and
running contracts for items of common use. For these purposes, certain guidelines have also been
issued by DGS&D in the form of manual, which also form a part of the legal framework for
procurements in India.
Illustration: DGS&D is known as the Directorate General of supplies and Disposals offer good
quality products with good assurance back up. Helps in purchasing products at competitive price
and frequent tendering is accessible for Desktop Computers, Printers, Laptops, Copier machines,
Toners, Tablets, Projectors, Thin Client, Scanner and Server of Acer, HP, Lenovo, HCL, Wipro,
Samsung, Lexmark, Brother, Sony, Canon, LIPI, Apple, Dell, IBM, Hitachi, Benq, Optoma,
Viewsonic, Epson and Xerox. DGSnD Rate contract for 2014 follows uniform purchase policies
and procedures. About tendering more priority is given to registered suppliers. It facilitates
buyers, bulk purchase at lowest competitive price and assures good products with quality
assurance back-up in time.
10.5.4 THE CONTRACT ACT, 1872:
The principles of Contract law and various sections of the Contract Act will be invoked in
government procurement. Government Procurement is an invitation to offer. Tenders are
received from different sellers. Government accepts the most relevant offer which results in
contract. Some of the salient features relating to contracts are briefly enumerated below:
What is a contract?
The proposal or offer when accepted is a promise, a promise and every set of promises
forming the consideration for each other is an agreement and an agreement if made with
free consent of parties competent to contract, for a lawful consideration and with a lawful
object is a contract.12
What agreements are contracts:
Section 10 deals with identifying the agreements which are contracts. An agreement is a
contract enforceable by law when it is made by competent parties with free consent with
lawful object and consideration. A defect affecting any of these renders a contract un-
enforceable.
Illustration:
12The Indian Contract Act, 1872- Section 2.
Railways invited tenders for the supply of jaggery to the railway grain shops. The
respondent submitted his tender for the supply of 14,000 imperial mounds of cane
jaggery during the month of February and March and the tender was accepted by the
letter. So far, the offer of a supply of a definite quantity of jaggery during a specified
period at a certain rate and the acceptance of the offer would constitute an agreement, but
would fall short of amounting to a legal contract inasmuch as the date of delivery of the
jaggery was not specified (which will amount as consideration in this case). Once the
order is placed for such supply on such dates, that order amounts to a binding contract
making it incumbent on the respondent to supply jaggery in accordance with the terms of
the order and also making it incumbent on the General Manager to accept the jaggery
delivered in pursuance of that order.13
Discharge of Contract:
A contract is terminated by due performance of the terms of the contract. A contract may
be terminated/ completed by mutual agreement, by breach, by refusal of a party to
perform, in a contract where there are reciprocal promises.
10.5.5 SALE OF GOODS ACT, 1930:
The Sale of Goods Act 1930 deals with the law relating to sale of goods in India. The term
“Goods” means every kind of movable property, other than money and actionable claims.
SECTION 4 says,” A contract of sale of goods is a contract whereby the seller transfers or
agrees to transfer the property in goods to a buyer for a price.” This act affects the government
procurement as it deals with procurement of goods for a price which are the ingredients of public
procurement. The act deals with absolute sale, agreement to sale, price fixation, condition and
warranties which are inclusive in procurements.
10.5.6 THE COMPEETITION ACT, 2002:
The Competition Act, 2002 prohibits any agreement which causes, or is likely to cause,
appreciable adverse effect on competition in markets in India. Bid rigging or collusive bidding is
an agreement between some suppliers to eliminate competition, increase price of products and
13 Union of India v. Maddala Thathaiah, (1964) 3 SCR 774.
deny fair price to producers that shall be presumed to have appreciable adverse effect on
competition under Section 3 of the Act and hence is void.
Practices of bid rigging etc. are considered serious criminal offences, as they tantamount to a
fraud on public exchequer, and have deterrent liabilities of imprisonment, and severe fines. In
India, there are provisions under the Competition Act, 2002 for imposition of severe penalties for
such offences.
10.5.7 RIGHT TO INFORMATION ACT, 2005:
Under the Right to Information Act, any person or entity may request information from a "public
authority" (a body of Government or "instrumentality of State") which is required to reply
expeditiously or within thirty days. The Act also requires every public authority to computerize
their records for wide dissemination and to proactively certain categories of information so that
the citizens need minimum recourse to request for information formally. It helps in maintaining
transparency and fair treatment to suppliers or tenderers. The government procurement is in the
light of natural justice by the virtue of this act.
10.5.8 FOREIGN EXCHANGE MANAGEMENT ACT, 1999:
The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of India to
consolidate and amend the law relating to foreign exchange with the objective of facilitating
external trade and payments and for promoting the orderly development and maintenance of
foreign exchange market in India. Mostly the government procurements deal with big amounts of
procurements. The payment of which has to be done in foreign exchange. The buying and selling
of foreign currency and other debt instruments by businesses, individuals and governments
happens in the foreign exchange market. Apart from being very competitive, this market is also
the largest and most liquid market in the world as well as in India. It constantly undergoes
changes and innovations, which can either be beneficial to a country or expose them to
greater risks. RBI would work towards an orderly functioning of the transactions which can also
develop the foreign exchange market.
10.6 E-PROCUREMENT:
E-Procurement is the purchase of goods and services through electronic mode of interface. The
entire process is IT enabled management. Notice, inviting bids, supply of tender documents,
receipt of bids, evaluation of bids, award of contract, payment, and all the systematic procedure
is fulfilled over the electronic mode. In order to make the procurement process cost effective,
improve efficiency and transparency, the Government aims to make procuring procedure
electronic. The Director General (Supplies & Disposal) has made significant progress in this
direction and the National Informatics Centre is engaged in pilot projects to design a secure IT
solution addressing concerns like encryption / decryption of bids, digital signatures, secure
payment gateways, date/time stamp for activities, access control etc.14 The Ministries are
supposed to publicize all their tenders on their websites. The electronic system should be secure,
capable of maintaining complete confidentiality at appropriate stages of the bidding process, so
that the tenderers build confidence in it. E-procurement invokes INFORMATION
TECHNOLOGY ACT, 2000. Information technology law governs the processing and
dissemination of information electronically. These are paper laws for paperless environment.
These are technology intensive laws to control and safeguard electronic transactions in the
electronic medium.
10.6.1 PREFERENCE POLICIES IN PUBLIC PROCUREMENT:
Preferential Treatment for the MSME Sector:
The Micro, Small and Medium Enterprises (MSME) sector contributes significantly to the
manufacturing output, export and employment opportunities. It provides employment outside the
agriculture sector. They are susceptible to volatile market conditions in the overall production.
To address these issues, India tries to support this sector by using preferential treatment to them
in matters of Public Procurement. The sole motive is to ensure a fair share of market to such
entities. Under the existing dispensation in India, the government guidelines provide support in
marketing of MSE’s products through variety of measures such as price preference, quota of
14 Government of India, Ministry of Finance , Manual on Policies & Procedures for Purchase of goods,
products for exclusive purchase from MSEs, issue of tender-sets free of cost, exemption of
earnest money, etc. Preference will be given to Micro and Small Enterprises registered with
District Industries Centers or Khadi and village Industries Commission or Khadi and Village
Industries board or National Small Industries Corporation or Directorate of Handicrafts and
Handloom.
Preferential Treatment for Central Public Enterprises:
The procurement policy of the government mandated both Central government departments and
public sector enterprises to apply price and purchase preference in favour of the public sector.
However, as per the extant government policy, a Central Public Sector Undertaking gets
purchase preference up to 10% over large scale private units15. Price preference is also extended
to Public Sector Enterprises on the basis of negotiated rates. PSEs in turn procure works, goods
and services without following a competitive bidding process. The entire procurement policy of
the government is thus subverted by nominating PSEs who, in turn often resort to cost plus
pricing for their supplies. This creates a potential for nepotism, inefficiency and additional costs,
besides curbing competition.16
Indigenous and Foreign Suppliers:
Responding to the questionnaire of WTO on government procurement services, Indian
Government stated that domestic bidders are treated on par with foreign bidders and the ultimate
price available to the user department is the determining criteria17. The Government Procurement
Manual, 2005 also provides that “where the Ministry/Department feels that the goods of the
required quality, specifications, etc., may not be available in the country and it is necessary to
look for suitable competitive offers from abroad, the Ministry/Department send copies of the
tender notice to Indian Embassies abroad as well as Foreign embassies in India requesting them
to give wide publicity of the requirement in those countries. For e.g. in case of Information
Technology, electronics and telecommunications hardware have flooded the market. As India
15 Department of Public Enterprises O.M. No. DPE. 13(12)/2003- Fin.Vol.II dated July 18, 2005
16 Report of the Committee on Public Procurement, 2011
17 WTO Document No. S/WPGR/W/11/ADD.14 dated Jan 17, 1997, as cited in India’s Accession to the GPA:
Identifying Costs and Benefits, NCAER Working Paper No. 74,2001
became a signatory to the Information Technology Agreement (ITA) - 1 under the aegis of the
WTO, electronic hardware is entering India duty free. The import figures for electronics and
telecom equipment is soon likely to be on par with India’s statistics for imported crude oil, the
costliest item on its import statistics.
Foreign bidders are allowed to participate only to the extent obligated under a country’s treaty or
trade pacts or to the extent upto which domestic capacities are unavailable. For instance, France
has a law requiring public contracts to be split and global procurements can be pursued only if
contract splitting is not possible for the benefit of domestic suppliers. Also, Canada which is a
founding member-state of the WTO’s pluri-lateral Agreement on Government Procurement
(GPA), consider that when foreign bidders are denied right to challenge public procurement
decisions, Canada’s procurement system allowed them limited participation. Similarly, US
Federal procurement system allows foreign bidder participation only from countries which have
bilateral/ multilateral trade pacts with the US on government procurement and such participation
is limited only to certain contract types and specified value- threshold agreements. Therefore,
foreign bidding participation is limited by de jure and de facto methods. Instance of de facto, The
US, for instance, has had a long-standing “Buy American” Act, imposing minimum domestic
content requirements, as also mandatory “set-asides” and “unbundling” policy requirements that
have the side-effect of limiting foreign participants, while enhancing the involvement of small
businesses.18
10.7 PROCESS OF GOVERNMENT PROCUREMENT:
The following is the flow chart which explains the process of procurement:
18 Domestic preference in government procurement- Sandeep Verma, Business Standard
iInsRSwsvepuPRGiiqteteuehuiucn cb ioirdgferlefiie eicc tpsnmla epitontn eeioteodcinfcsnet t eb ors to i ondf sg oods OacopbDtmphtEbeareOpvoitid neealvposritlaenu mewlnga noei ttnfis o agtt nt hboi oeiofd n fb oidfs tOtfouhhbCtAvtPbvhhleeiowalfpfAedeie ininygcblrrldau lemdstsaoDREomiredrdee otdagcneeareiilaedurrtr ottecpno en nuerroatncotafeeet rrts f os c ntbmmes oitonptt tdyhfuo ee e M teafnnrh l ttto eh n ee y
goPordosc urement authority
1. GUIDELINES RELATING TO PUBLIC PROCUREMENT: There are various guidelines
which regulate public procurement of goods and services. Public authorities must read and
understand these guidelines.
2. REQUIREMENT OF GOODS: The term ‘goods’ used for the procurement of goods by the
Government generally refers to all articles, material, commodities, livestock, furniture, fixtures,
raw material, spares, instruments, machinery, equipment, industrial plant etc. purchased or
otherwise acquired for the use of Government but excluding books, publications, periodicals, etc.
for a library. What goods are to be required by the Government are determined at this stage.
3. SPECIFICATIONS WITH RESPECT TO THE GOODS: Specification refers to the
attributes the procurer wants in the goods for which the tender is floated. The specifications of
the goods shall meet only the actual and essential needs of the user. They should neither be too
vast nor too restrictive in case of non-essential goods. But in case of essential goods the
specification need not be restrictive. The specifications should be to procure those essential
goods which do not sacrifice the basic needs. For instance, in case of mid-day meal the
government should procure nutritive goods. Similarly, in case of health sector, the specification
of the medicines should be the best quality of medicines which fulfill the basic health needs. The
specifications should also take care of the mandatory and statutory regulations, if any, applicable
for the goods to be purchased.
4. ISSUE OF NOTICE INVITING TENDER: Notice Inviting Tender, i.e. invitation to offer
(tender) is given for procurement of goods whose value is above Rs. 25 lakhs. Advertisement
relating to the invitation should be given in the Indian Trade Journal (ITJ) and at least in one
national daily having a wide circulation. The limited tender procedure is adopted for
procurements costing Rs. 25 lakhs.
5. RECEIPT OF BIDS: Bids from prospective suppliers are received. Ordinarily, the minimum
time to be allowed for submission of bids should be three weeks from the date of publication of
the tender notice or availability of the bidding document for sale, whichever is later. The Central
Vigilance Commission however, stipulates four weeks. Where the department also contemplates
obtaining bids from abroad through international competitive bidding, the minimum period
should be kept as four weeks for both domestic and foreign bidders.
6. OPENING OF THE BIDS RECEIVED: The bids should be opened in public on the
prescribed date time and place. Authorized representative of the bidders should be permitted to
attend the opening of the bids. Tenders should be opened immediately after the deadline of the
receipt of tenders with minimum gap in between. Any negotiation between the procurer and
supplier should be severely discouraged.
7. EVALUATION OF BIDS: Evaluation of tenders is one of the most significant areas of
public procurement. Parameters, which are to be taken into account for evaluating the tenders,
are to be incorporated in the tender enquiry document in clear and comprehensive manner, so
that the interested tenderers can formulate their competitive offers in a meaningful manner and
participate in the tendering process with confidence.
The public procurement authority should prepare a comparative statement of quotations received
in the order in which tenders were opened. This statement will have information about
specifications of the material offered by the tenderer, rates quoted (including taxes or otherwise),
discount, if any, delivery schedule, earnest money deposit, validity of the offer, payment
schedule etc. All the tenders are to be evaluated strictly on the basis of the terms & conditions
incorporated in the tender enquiry document (based on which offers have been received) and the
terms, conditions etc. stipulated by the tenderers in their tenders. No new condition should be
brought in while evaluating the tenders.
8. DETERMINATION OF THE LOWEST BIDDER: The ultimate aim for evaluation of
tenders is locating the lowest responsive tender for procurement of contracts. Contracts should
ordinarily be awarded to the lowest evaluated bidder whose bid has been found to be the most
responsive and who is qualified to perform the contract satisfactorily as per the terms and
conditions in the corresponding bidding document. Depending upon the nature of goods and the
value thereof, the purchasing Ministry/Department is to decide the appropriate procedure to
identify the lowest responsive bidder. An exception to the rule is exceptional circumstances
where price negotiations are considered unavoidable. The negotiation may be resorted to, but
only with the lowest evaluated responsive bidder and that too with the approval of the competent
authority.
9. OBTAINING APPROVAL OF COMPETENT AUTHORITY: At different stages in the
entire public procurement process, approval of the competent authority is required. One needs to
refer to the Delegation of Financial Powers to determine who the competent authority is. For
instance, approval of competent authority is required for placing order on the L1, suspending a
firm from supplying goods, etc.
10. RETURN OF EARNEST MONEY: Earnest money is also called bid security, which is a
monetary guarantee furnished by a tenderer along with its tender. It is asked to safeguard against
a bidder’s withdrawing its bid during the bid validity period. The amount, which is usually
between 2-5% of the estimated value of the goods to be purchased, needs to be specified in the
notice inviting tender. Submission of earnest money deposit (EMD) is not necessary for a
contract value upto Rs.1 lakh. Submission of earnest money is not required when suppliers are
already registered with the Ministry/Department and National Small Industries Corporation or
the concerned Ministry/Department. The earnest money furnished by all unsuccessful tenderers
should be returned to them without any interest whatsoever, at the earliest after expiry of the
final tender validity period but not later than 30 days after conclusion of the contract.
11. AWARD OF CONTRACT: After determining the lowest bidder, the public procurement
authority shall notify the successful tender in writing that its tender has been accepted. In the
same notification, the requirement to submit the performance security and the duty to send its
unconditional acceptance to the offer made by the purchase organisation are mentioned.
12. OVERSEE FULFILMENT OF CONTRACTUAL OBLIGATIONS BY BIDDER: The
office of the public procurement authority is required to oversee that the vendor fulfils all
contractual obligations like timely delivery of goods, proper testing and installation, training of
employees, etc.
13. PAYMENT TO THE SUPPLIERS: The office must also fulfill its own contractual
obligation like timely payment to the supplier.
14. AUDIT OF FILE: The public procurement case files are to be submitted to the audit party
when called for during the audit.
10.8 EXAMPLES OF TYPICAL PROCUREMENT SENARIOS19:
EXAMPLE 1:PROCUREMENT OF TABLETS:
Under a Government project, it is intended to procure 1 lakh tablets. In order to fulfill 70:30
norm of the proposed policy, they have to procure 30,000 tablets from domestic electronic
products manufacturer. The bid documents should specifically provide preference to
domestically manufactured electronic products in terms of 30 percent of procurement value
subject to matching of P1 price and on satisfying technical specifications of the tender. Suppose
there are 5 bids.
P1- price
DM- Domestic Manufacturer
NDM- No Domestic Manufacturer
Case 1: After opening of commercial bids, position is like
P1: DM1, P2:NDM1, P3:NDM3, P5:DM2, then work will be awarded to DM1 vendor.
19 Manual on Policies & Procedures for Purchase of Goods, Department of Expenditure, Ministry of Finance,
Government of India, August 31, 2006.
Case 2: After opening of commercial bids, position is like P1: NDM1, P2: NDM2, P3: DM1 and
P5: DM2. NDM1 qualifies as P1, and DM1 is P4, then NDM1 has to provide 30 percent of the
procurement value to DM1 at P1 prices.
Case 3: After opening of commercial bids, position is like P1: NDM1, P2:NDM2, P3: NDM3,
P4: NDM4 and P5: NDM5. In this case no domestic electronic product manufacture is available;
hence the full order will be awarded to NDM1
Example 2: Procurement of Super Computer
Procuring agency desires to procure Super Computer with prescribed specification for M5crore.
Item cannot be split. The procuring agency is not able to apply 70:30 norms. Therefore, in
subsequent procurement of electronic products by the said agency, it should provide an
additional value of M1.5crore (30 percent) for domestic manufactured electronic products.
Example 3: Procurement of Switches by Telecom Licensee ‘X’ through a ManagedService
Provider (MSP) ‘A’
Telecom Service Provider may only be procuring hardware services from MSP ‘A’. However,
70:30 norm is applicable. Telecom Licensee ‘X’ is required to ensure 30 percent of the procured
value that MSP ‘A ‘provides through domestic electronic hardware products.
10.9 WEAKNESS IN THE GOVERNMENT PROCUREMENT SYSTEM:
Even though procurement is a government activity, yet there are certain lacunas in the
institutional framework and it fails to provide transparency, accountability, competition,
efficiency, economy to the government. Unlike US, there is no central law on government
procurement in India hence, it makes the system vague. For instance, the unveiling of several
high level scams, including procurement for the Common Wealth Games 2011 held in Delhi.
The loophole in the procurement system has also featured repeatedly in a number of reports of
the CAG of India, the CVC, expert committees and academic bodies, including the World Bank,
the report of the Committee on Public Procurement, set up by Government of India, which
submitted its Report in June, 2011 etc.
Systemic Problems across the Public Procurement Regime
The absence of a Public procurement Law makes the ministries and departments of the
Government of India treat the GFR rules as mere guidelines which can be overridden in the name
of public interest. Each department has its own procurement manuals, procedures and practices.
To counter corruption in public procurement the CVC, India’s apex anti-corruption agency, has
issued numerous guidelines and instructions on model procurement practices in the form of
circulars. These bevies of procedures and practices confuse officials and make the system
ambiguous. The absence of any credible process of grievance redressal and of any legal penalty,
to prevent officials of the procuring department to commit any malafide actions, ensues into
loopholes. For example, in the procurement of goods and services for the Common Wealth
Games held in New Delhi in 2011, it have illustrated that there is often political interference in
the bidding process of large contracts, probably because of absence of a proper legal framework
or lack monitoring and scrutiny at the time of tendering and contracting. Codified procurement
law governs public procurement in the US, the EU, Canada, South Korea and even China,
Afghanistan, Bangladesh, and Nepal. The last three countries have based their laws on the
pattern of the UNCITRAL Model Law on Public Procurement.
Absence of Standard Contracts and Tender Documents:
Absence of a single Central/State Legislation to govern public procurement gives the opportunity
to procuring departments to adjust guidelines to benefit few firms. The World Bank India
Procurement Report, 2003, estimates that more than 150 different contract formats are being
used by the public sector. The same report has pointed out the multiplicity of tender documents
used by different procuring departments and even that for similar works, different agencies issue
different tender document, in terms of prequalification criteria, process of selection, financial
terms and conditions etc. The absence of standard documents and contracts presents scope for
manipulation and nepotism.
Corruption and Compliance:
The CAG and CVC are the two main monitoring bodies. The CAG audits the expenditure, i.e.
the tendering process. The Action Taken Reports called for by the audit do not have a specific
time limit for compliance by the departments and ministries in whose tendering process
irregularities have been found. Consequently, the delayed response does not allow timely
remedial action, since by that time the contract may have already been substantially executed or
discharged. The CVC supervises investigations under the Prevention of Corruption Act, 1988
and issues various guidelines specific to public procurement to curb corruption. The limitation of
both these monitoring authorities is that they cannot deal with private parties indulging in fraud.
The CVC deals with public servants and excludes misdemeanor by private parties. The CAG’s
audit also concerns itself with the use of public money for the purpose for which it was allocated
to the concerned Ministry by the Parliament and thereby has no impact on malpractices by
private bidders. There are certain provisions of corruption compliance in Companies Act, 2013
like class action suits, prevention of money laundering, auditor rotation, etc. These act as a
preventive check on corruption. Earlier, section -454 (3) which talks about Adjudication of
Penalties under ensuring compliance of the default and prescribing rigid penalties in case of
repeated defaults, used to say that ''By virtue of the provision, the adjudicating officer appointed
by the central government only had a right to impose penalty on the company and the officer in
default stating the non-compliance or default under the relevant provisions of the Act''. But after
amendment in 2018 it says that, ''By virtue of the amendment, the adjudicating officer in addition
to the exercise of power of imposing penalties is also empowered to direct the company and
officer in default to rectify the default.''
There are several strategic options before India for arriving at the necessary solutions for
preventing corruption. In section - 454 A ( Penalty for repeated default ) there was no provision
earlier but after 2018 amendment this is a new sub-section. In case a company or officer of a
company or any other person having already been subjected to penalty for default, repeats the
same default within a period of 3 years from the date of the order imposing such penalty, it or he
shall be liable for the second and every subsequent defaults for an amount equal to twice the
amount provided for such default under the relevant provisions of the Act. The country can opt
between implementing unilateral reforms in the shape, of enacting comprehensive modern law. It
can also choose to accede to the WTO’s Government Procurement Agreement (GPA), an
important internationally recognised legal framework promoting competition, transparency and
integrity in the procurement process. India may even opt for bilateral and regional trade
agreements on government procurement. FOR INSTANCE, the India-Japan Free Trade
Agreement (FTA), 2011 provides a rudimentary accord for information-sharing on rules and
regulations in government procurement of the respective governments.
The proponents of India joining the WTO GPA as a member provides two major advantages, viz
(a) the excellent regulatory framework it offers in case of exports and (b) the flexibilities it offers
to developing countries to maintain their domestic preferences. The GPA offers a stronger and
more comprehensive instrument to regulate procurement; its guiding principles are similar to
those promulgated by international organisations, such as the UN, Asia Pacific Economic
Cooperation (APEC), the Organisation for Economic Cooperation and Development (OECD)
and the World Bank, as well as NGOs, like the Transparency International, i.e. fairness, integrity
and efficiency.
To this end, the PUBLIC PROCUREMENT BILL (PPB), 2012 has been formulated with
extensive public and supplier consultation and submitted for approval to the Group of Ministers
(GoM) on Corruption. The GoM had appointed the Committee on Public Procurement (Dhall
Committee)which, in its report to government submitted in 2011, had recommended the
preparation of such a Bill as one of the major thrust areas in government’s anti-corruption
agenda, which suggestion was accepted by the GoM. The Bill attained the approval of the GoM
on February 22, 2012 and of the Prime Minister and the Cabinet thereafter. On May 14, 2012,
this Bill, which seeks to regulate the award of government contracts above Rs 50 lakhs (US$1,
00,000 at the exchange rate of approximately Rs 50/$) to ensure “transparency, accountability
and probity” in state purchases, was introduced in the Lok Sabha, the lower house of India’s
Parliament.20
20 Government Procurement in India: Domestic Regulation & Trade Prospects- CUTS International, 2012.