The Hindu Business Line : <I>A case of `serious disconnect' in a software contract </I>

The question of iBilt was simple: Why should TCIL pay more when iBilt "was prepared to offer the hardware, software and system support at a low price"?

The kisan or the farmer is the backbone of the economy. However, he remains for most part outside the digital space.

To narrow the divide, many initiatives are taken. But, to succeed, these initiatives have to weather many storms, some of which rage on in courtrooms too. As an immediate example, here is iBilt Technologies Ltd vs Telecommunications Consultants India Ltd, a case that the Delhi High Court decided on February 14.

The story begins with a great project from the Department of Agriculture and Co-operation in the Ministry of Agriculture: the Kisan Knowledge Management System. For this, the Department appointed Telecommunications Consultants India Ltd (TCIL) as its consultants.

TCIL invited an Expression of Interest (EoI) in March 2005 from qualified and experienced information technology vendors, and then short-listed a few vendors, including iBilt Technologies Ltd. TCIL invited a Request for Proposal (RFP) for implementing the System from the short-listed vendors.

For the Web-savvy, there's a 64-page RFP available on www.tcil-india.com/tender/05B18.pdf. An informative page on `Kisan Call Centre' and `Knowledge Management System' is on http://agricoop.nic.in. Find more about iBilt, the petitioner, on www.ibilttechnologies.com.

The RFP was in the nature of an invitation to bid. It had two parts, viz. a technical presentation for the development and implementation of the System, and a financial bid. The tender was for supply of hardware, development and supply of specialised software, system application support, and maintenance. Bidders were to offer a three-year warranty for the hardware and software; and, for years 4 to 6, they were required to provide an annual maintenance contract (AMC).

When bids were opened on September 12, 2005, iBilt's price was the lowest of all the technically qualified ones. Its bid for the warranty period was the lowest, at Rs 2.5 crore, as against the next higher bid of Rs 2.8 crore. For AMC, too, iBilt quoted the lowest, at Rs 22 lakh as against the next higher bid of Rs 85 lakh.

"In view of the huge discrepancy in respect of the post-warranty services," TCIL sought two clarifications from iBilt. One, whether the AMC for years 4 to 6 in the financial bid included technical support from the respective original equipment manufacturers (OEMs); and two, supporting letters from the OEMs.

In response, iBilt clarified to TCIL that the financial bid included technical support, and also submitted letters from the OEMs. During further negotiations, TCIL asked iBilt to provide a performance bank guarantee by way of additional security for the post-warranty period; iBilt agreed to the same. But more on this later.

Tender cancellation

In December 2005, iBilt came to know that the entire tender process had been cancelled and that a fresh and substantially similar tender was called forth by TCIL. Aggrieved, iBilt filed a writ petition in the court seeking quashing of TCIL's decision to call for a fresh tender, and also seeking the allotment as per the earlier tender. The question of iBilt was simple: Why should TCIL pay more when iBilt "was prepared to offer the hardware, software and system support at a low price"?

TCIL filed a brief counter-affidavit dated January 4, 2006, stating that the AMC for years 4 to 6 quoted by iBilt was exceptionally low. Therefore, TCIL had sought a clarification not only from iBilt but also from the OEMs. All three OEMs, viz. IBM, Oracle and Red Hat clarified that, for updates and upgrades of proprietary software, they charged an annual technical support or subscription renewal. Thus, "TCIL genuinely apprehended that it might have to incur additional cost with regard to the post-warranty services, which would be against the interest of the Government. Consequently, it was decided to call for a fresh tender."

Among the written submissions by the parties, there was an interesting letter that iBilt had written to TCIL on October 24, 2005. There, iBilt admitted that the rates quoted by the OEMs were significantly higher; it added that since TCIL and the Department were `strategically important accounts', iBilt had `quoted a lower price with a very different perspective'.

In financial terms, this meant that iBilt would charge Rs 22 lakh for the post-warranty annual maintenance, though it would incur a liability of about Rs 81 lakh to the OEMs. Queasy with `this odd arithmetic', TCIL wondered if the Department would have to incur additional cost for maintenance.

`The worst case scenario' on TCIL's table was that, if iBilt walked out of the contract after the warranty period, the Department would have to incur a cost of Rs 81 lakh payable to OEMs towards annual maintenance services for the system software, and also pay Rs 24 lakh towards maintenance and support of the hardware and application software. Total payment to OEMs would be in the region of a little over Rs 1 crore, it was computed.

Performance guarantee was an antidote, to transfer risk, thought TCIL. Though iBilt agreed to the idea, when asked for such a guarantee, what it ultimately gave was only for Rs 23 lakh, equivalent to 10 per cent of the contract amount. Finding this to be `totally inadequate', TCIL decided to call for a fresh tender.

High risk strategically important

At the court, iBilt admitted all these facts, but insisted that it was willing to take the commercial risk. It said it could meet the cost of post-warranty services, and even suffer a loss while doing so; it was well worth the risk, especially if the company could bag the `prestigious contract of strategically important accounts'.

Citing precedents iBilt contended that TCIL should award the contract to the lowest bidder. But TCIL submitted that the award of a contract was a commercial transaction, and that commercial considerations should be of paramount importance. For support, TCIL relied on Raunaq International Ltd vs IVR Construction, in which the apex court had laid down a list of commercial considerations that are of paramount importance.

On the case on hand, Delhi High Court said it was not satisfied with the explanation offered by iBilt. "While the price at which the contract is likely to be awarded is of some importance, it is equally important to be certain that the successful bidder can deliver the goods or services up to a minimum standard and quality," said the court.

"In the present case, the OEMs themselves, each of whom is a reputed organisation such as IBM, Oracle and Red Hat has stated that for the subscription renewal or technical support and updates and upgrades, they would be charging a total of about Rs 81 lakh," noted the court. Therefore, it is not possible to accept that iBilt, who would be availing all these facilities given by OEMs, would be able to render the same services for only Rs 20 lakh, opined the court.

`A serious disconnect', this was, between the prices quoted by OEMs and iBilt. To the court it seemed `rather facetious' of iBilt to contend that it was taking a commercial risk for its business purposes. A serious disconnect, again, between what get promised for kisans and what we deliver to them.

"The Respondents are certainly not obliged to be the victim of a risk of the Petitioner requiring them, by its inability to render effective post-warranty services, or worse, by walking out of the contract, leaving them to fend for themselves and incur an obligation up to Rs 1 crore. We were told that it is this that weighed in the mind of TCIL when it recommended scrapping of the tender and inviting fresh bids. This reason is good enough for us," said the court.

Adopting the caution of judicial restraint advised by the Supreme Court, the Delhi High Court said, "We do not have any technical expertise in the matter and so must accord due respect to the views of Respondents, who have a reasonable (and legitimate) apprehension that the Petitioner may not be able to provide, if at all, the desirable level of adequate and effective post-warranty annual maintenance services."

Therefore, the court ruled that it could not find any fault in the decision of TCIL in going in for a fresh tender.

Cases@TheHindu.co.in

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