A Historic Reform In Public Procurement

Special Cases

There are issues to be addressed. For example, why is the technical score given at only 30% and not 80% as in consultancies? You could argue that if it is very complicated tunnelling in the Himalayas, then only very specialised companies with knowledge and competence would be allowed to bid for that tender and be evaluated on their competence and past track record. Therefore, there is a clear case for arguing with the government that in special cases, provisions should be allowed to take the technical score as high as 80% as done for consultancies. There is a case for increasing the technical score from 30%. But we do recognise that it’s a beginning and I am sure as this whole format comes down, these refinements will be taken care of.

Threat Of Encashing Guarantees

There is next the scourge of arbitrary bank guarantees and threats of blacklisting.

This is standard procedure in construction and EPC bids in Indian infrastructure and related projects that on the whims and fancies of the procurement agency, if there is a dispute, a bank guarantee is encashed, without giving notice or without giving time for a cure period. And even junior officers in state public works departments or even in central entities can threaten a private company by saying, “You don’t follow my instructions; I will blacklist you.”

This business of arbitrary encashing of bank guarantees and constant threats of blacklisting—sometimes without substantive reasons—has not been addressed in this notification and in future needs to be addressed. All of us know that in public tendering, there is always that one bad apple that gives a bid that is either extraordinarily low, or extraordinarily high in the case of revenue sharing and other methods like auctions. That vitiates the entire bidding tendering process.

Irrational Bids

We must have a system for weeding out irrational bids, whether that is done statistically or through committees empowered to do it. It is still to be addressed. The future modifications to this notification must address that.

Swiss Challenge is a method of procurement that is popular for infrastructure projects the world over, which is a private sector player thinks of a creative project, brings it to the government and asks for the privilege of implementing it. India still doesn’t have a clear policy on what is called Swiss Challenge and that now needs to be built into the procurement process.

All public procurements have a system where an independent engineering firm clears the bills and assures quality. That system today, in a sense, is not really fulfilling its purpose. For the simple reason that the independent engineer is not paid by the government but is paid by the private sector company whom it is supposed to audit and monitor. It’s built for failure. So, the independent engineer system needs to be modified.

Safety Net For Bureaucrats

There is a need to protect bureaucrats against post facto investigation. Newspapers were full of the news about ex-Coal Secretary HC Gupta sent to jail for rigorous imprisonment for his role in the so-called coal scam. If the newspapers, commentators and editorials raise the question that if bureaucrats are not empowered to take decisions, then I am afraid major infrastructure projects will come to a halt.

A system needs to be created where bureaucrats are protected in genuine cases against post facto investigation, where there are no allegations of personal corruption against them, and decisions need to be taken by committees.

States Must Follow Up

A very important point in this Oct. 29, 2021 historic reform is the fact that it is only restricted to central government entities. It is only restricted to the central government works contracts and related consulting and service assignments which are issued by the ministries and departments of public sector units. But procurement and public works is a state subject and 60% of public works in this country are done by the states. This public procurement constitutionally belongs to the states wherever the state is spending money on it.

It is a crying need for all of us who are concerned with the infrastructure sector to now rally state governments to come around to this point of view that the centre’s historic initiative in reforming public procurement processes now needs to cascade down to the states. Not only should media do it, not only should state finance ministers wake up to it, but the Indian industry led by the different industry associations should now stand at the door of state governments, particularly their finance departments, and say, “The central government has done it, this is good for the industry, why don’t states adopt it and it should be taken up in Mission Mode.”

Time-Bound Process, Fair Price Escalation

There are two other smaller issues. The future additions and modifications to this notification should take care of the fact that the bid process cannot be indefinite. Sometimes bids are asked for and a decision is not communicated for nine months to 12 months, by which time inflation has eaten away margin, prices have changed, conditions have changed. There must be a definite time limit when you call for a bid to say that the decision has to come, and I would argue it should not come later than three months. That’s enough to evaluate the bids. That means taking care of price escalation in works contracts.

Today, there are very huge inflationary pressures in the economy. A large portion of that affects the construction trade, steel, cement, and building materials. All of that push up the costs, which were not seen at the time of the tender. Public works tenders do have a provision for providing price escalation, but the formula used there is not practical.

To give an example, the entire cost of package of works contracts has increased by anywhere from 16-20% because of the current bout of inflation, but the formula used for giving them compensation, as per the CPWD contracts, compensates them for only about 6-7%. You are hit by about 10% in your construction contracts, where your margin may not be more than 9% or 10%. So, issue of price escalation for works contracts needs to be taken care of in future additions.

Effective Implementation

Now, a very important question is consequences management. What is going to happen if people don’t follow these rules. These rules for timely payments, the process of procurement, the bidding process of QCBS quality and financial scores and honouring arbitration awards have been incorporated in the general financial rules of the Union of India. Every member of the bureaucracy and the political system has to follow it.

So, how will you follow it? The best method is CAG audits it and pulls up officers who do not follow these rules. As recently as July 1, 2022, about six or seven months since the notification was issued, the Central Vigilance Commission pushed aside all historical notifications on public procurement and incorporated these changes in its public procurement manual.

It has now gone into the DNA of the audit and vigilance process of this country. Any officer who violates this is not only auditable, but the CVC can pick it up for non-compliance. This is a serious offence and it can’t get more serious than that. This is consequence management.

From now onwards, just watch out for the central CAG audits and the strictures of the CVC where an entire range of procurement authorities of the central government now are faced with these historic reforms of payments in 10 days, honouring arbitration awards and having the facility for QCBS in quality-oriented projects. Which is why I have called it a historic reform.