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Need for a Law on Public Procurement in India

  • Category
    Polity & Governance
  • Published
    25th Jun, 2019

Recently, the Supreme Court expressed its anguish over array of litigations against the award of tenders which are being challenged in writ proceedings as a daily routine.

Issue

Context:

Recently, the Supreme Court expressed its anguish over array of litigations against the award of tenders which are being challenged in writ proceedings as a daily routine.

About:

What is Public Procurement?

In simple words, Public Procurement is the process by which the Government procures goods and services from the private entities and in return pays them in monetary terms for the goods and services rendered by them.

What is the basic underlying principle of India’s Public Procurement regime?

India’s regulatory and institutional framework seeks to ensure responsibility, accountability and efficiency in the public procurement regime.  The underlying principle is to procure materials/services of specified quality at the most competitive prices in a transparent and non-arbitrary manner.

Analysis

How does the government conduct public procurement?

  1. Advertised Tender Enquiry: This is the default mode of procurement. The tender is advertised on governmental websites, national newspapers, the Indian Trade Journal, the central public procurement portal and GeM, and also circulated to foreign embassies.
  2. Limited Tender Enquiry: Procurement is obtained through selected suppliers. A pre-selected list of vendors, prepared through a thorough screening process, is directly approached for bidding. 
  3. Two-stage Bidding: Two bids (technical and financial) are invited from the procurers.
  4. Nomination-based Tenders.
  5. Procurements without Calling Tenders: This is typically undertaken for small value purchases of standard specifications.
  6. Electronic Reverse Auction: Presentation by bidders of successively more favourable bids during a scheduled period of time and automatic evaluation of bids.
  7. Government to Government (“G2G”): G2G deals involve the transfer/sale of a country’s defence equipment, services, training, etc. to other foreign governments. 

What is the Legal Framework adopted in India for Public Procurement?

Constitutional Provision

  • The Constitution of India authorises the Central and the State Governments to contract for goods and services in the name of the President of India or the Governor of the State (respectively), and directs autonomy in public spending. However, it does not stipulate any procurement policies or procedures.
  • Article 282 provides for financial autonomy in public spending, there are no provisions to address any grievance.
  • Legal Provisions
    • A Public Procurement Bill was proposed in Lok Sabha in 2012, which could not be passed.
    • This bill was revamped in 2015 and introduced in 2015. But it suffered the same fate as that of earlier bill.
    • So, as of now, there is No Central Legislation in India that administers public procurement of goods and services.
    • Only 5 states in India, i.e Tamil Nadu, Karnataka, Rajasthan, Andhra Pradesh and Assam have state public procurement legislation.
    • Competition Act, 2002: Penalises anti-competitive activities such as bid rigging, collusive bidding, cartelisation, and abuse of dominance.
    • Right to Information Act, 2005: Promotes transparency in government dealings by entitling Indian citizens to expeditiously procure information from the government through a “right to information” application.
    • Integrity pact under the GFR and CVC guidelines: Addresses probity in procurement activities including through the appointment of an external monitor to mitigate corruption and ethical risks.
    • Prevention of Corruption Act, 1988 and Prevention of Money Laundering Act, 2002: Penalise bribery and money-laundering and provide for confiscation of property derived from money-laundering and other illicit activities.
  • Supreme Court Directions
    • All contracts by the State should only be granted by public auction/tenders to ensure complete transparency and provide all eligible persons with the opportunity to participate in the auction;
    • All official acts must be actuated by public interest, and should inspire public confidence;
    • Generally, the State should not grant contracts by private negotiation (subject to certain exceptions based on the nature of the trade, emergency circumstances, single source supply, etc.); and
    • Appearance of public justice is as important as doing justice (i.e. government actions should not only be fair but should also be seen to be fair, and nothing should be done which gives an impression of bias, favouritism or nepotism).

What are the issues in the Public Procurement System in India?

  1. The absence of a comprehensive procurement Act

It has resulted in heterogeneous procedures and multiplicity of rules across the procuring entities.  Many times, undertaking comprehensive actions against the stakeholders involved in unfair practices become challenging in the absence of a strong legislation

  1. Lack of standard bid documents

In spite of the initiatives for standardizing the bid documents and code of contract following the international agencies such as IMF and the World Bank, there continues to be a multiplicity of bid documents across the entities in terms of addition/rephrase/repetition of clauses/provisions. Such ambiguities and contradictions in the bid documents stand against the principles of standardization, transparency, and accountability.

  1. Delays in activities in procurement cycle

The procurement process is often delayed in the stage of need assessment, budget preparation, and approval. Similarly, unavailability of sufficient procurement professionals and non-realization of the required information usually appear responsible for the delay in preparing the technical specifications.

  1. Unfair practices and corruption

Despite the procedural safeguards, corruption level in India is perceived to be high in recent years leading to low quality of public services which ultimately hampers the development process.

  1. Presence of anti-competitive elements

The existence of anti-competitive practices by the bidders’ community tends to hamper the procurement process by negating the best value of money. Competition issues in India mainly concern with collusive bidding, bid rigging, cartelization, and abuse of dominance.

  1. Low participation of the domestic MSEs

Despite the MSEs provisions, the participation of domestic MSEs in the public procurement activities remains low in India. Apart from resource related entry barriers including anti-competitive elements, many MSEs do not also take part in public procurement due to a perception that government procuring entities often delay in releasing the contract payments.

  1. Competency and skill of the procurement officials

India does not have an Independent Grievance Redressal Mechanism in the procurement system. At the first tier, an aggrieved bidder files complaints on the irregularities to the concerned officials of the procuring entity. However, the judgement lacks credibility as the authority is from the procuring entity itself that is responsible for causing grievance.

Conclusion

The present study assesses the public procurement system and recent reform initiatives in India and outlines the need for changes in the institutional framework. The current system appears to be complex due to heterogeneity in the requirements in the federal structure of the government functioning and absence of a comprehensive procurement Act. The system suffers from some serious drawbacks such as fragmented procedures and rules, lack of standard bid documents, unavailability of sufficient procurement professionals, lack of transparency, widespread corruption, and lack of independent grievance redressal mechanism. Hence, these need to be backed by legislative power, and Draft Bill 2015 should be enacted with revisions in certain areas.

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