Issues in public procurement

Finally, after a year of public consultations, the Government notified on March 8 the amended General Financial Rules (GFR) 2017, which feature new rules on public procurement.

A law on the subject, as was initially discussed during public consultations, would have brought in certainty and cut through the maze of regulations that confuse governance of the subject.

However, even updated GFRs are an improvement, as updating of these rules, last consolidated in 2005, was needed to keep pace with the imperatives of a modernising Indian economy. This carries significance for the government contracting market, valued annually on average at the substantial figure of about 30 per cent of India’s GDP and covering almost every sphere of government activity.

The modernising touches are most marked, for example, in the new tendering mode involving complex procurement, where the procuring agency is not able to formulate in advance detailed specifications for the subject matter of procurement. It needs inputs on its technical aspects from bidders; also the subject matter of procurement is liable to rapid technological advances and market fluctuations and so on (Rule 164, ‘Two-Stage Bidding’).

In this situation the Government enters into a competitive dialogue with multiple bidders by inviting bids to formulate the technical specifications, ensuring equal opportunity in discussions for all bidders. Once the specifications are finalised through this dialogue, price bids are called for from those whose ideas were accepted and the award goes to the bid with the best quality-price ratio. This openness to draw on know-how from the open market is likely to enrich and/or modernise government’s conceptualisation of projects.

Another significant effort in modernisation is with regard to assignation of greater weight to quality rather than cost. In the procurement of consultancy services, where “quality of consultancy is of prime concern”, up to 80 per cent weight can be assigned to quality under ‘Quality and Cost Based Selection’ tendering (Rule 192).

E-governance is another modernising measure through promotion of competition and transparency. GFR 2017’s reliance on e-governance finds expression through Rule 159, mandating e-publication of all important procurement information on the Central Public Procurement portal; in Rule 160 making e-bidding compulsory for all procurements without any lower threshold limit; in Rule 167 promoting electronic reverse auction for certain types of procurement.

Probity concerns are another aspect. Among the firsts in Indian anti-corruption law, it targets the demand and supply sides of corruption, whereas earlier regulation, such as the Prevention of Corruption Act 1988, had targeted mainly the demand (bribe-taking) side, treating bribe-giving as merely ‘abetment’.

Now under Rule 175 there is a Code of Integrity barring the offering and acceptance of inducements, breach of which code by bidders leads to their debarment from the procurement process for a number of years (Rule 151). Presumably, for procurement officials found in breach of the Code, sanctions are laid out.

GFR 2017’s environmental credentials are displayed when it specifies that in “Criteria for determining responsiveness” which “are to be taken into account for evaluating the bids”, “environmental characteristics” are included.

Its market access remit (Rule 161-iv) has cleverly retained the wording of GFR 2005. It stipulates that non-domestic goods will be allowed into the Indian public procurement market “if goods of the required quality, specifications etc may not be available in the country and it is necessary to also look for suitable competitive offers from abroad”. This wording provides policy coherence with India’s Make in India ethos by making preference to domestic goods the rule, rather than the exception. (The exactly converse position prevailing in the Public Procurement Bill 2012 of the predecessor government drew much flak.)

Simultaneously, the conditions for import in exceptional circumstances are so liberal that government procurers have flexibility to import whenever the situation so demands.

Classicists argue that an open market which treats domestic and foreign players on par is more efficient. But in giving primacy to domestic goods, we are but following worldwide “Buy National” trends.

Where the GFR 2017 has fallen below expectation is in the complete absence of any mechanism for quick redress of the grievances of bidders. International examples, such as the UNCITRAL Model Law on Public Procurement and the Government Procurement Agreement of WTO uphold an independent administrative review mechanism for this purpose. The Public Procurement Bill 2012 of India had also provided for Grievance Redressal Committees.

The UN Convention on Anti-Corruption, which India ratified in 2011, also binds parties to install such an appeal mechanism through its Article 9(d).

In not providing for a review mechanism, the GFR 2017 has left a marked lacuna as the courts and arbitrators now remain the only resort for the aggrieved bidder, but whose time-taking (and expensive) processes are not able to dispense the quick decisions needed to intervene in an ongoing procurement process by suspending/cancelling it in case it is progressing in an unfair manner.

Even to enforce the Code of Integrity, the GFR 2017 does not prescribe an independent external monitor (IEM) as is the actual current practice under the Central Vigilance Commission guidelines.

Another disappointment in the GFR 2017 lies in its inconsistent attitude to safeguarding the rights of both bidders and procurers. Rule 173(iv) is praiseworthy in that it upholds the right of bidders by stipulating that “…the reasons for rejecting a tender or non-issuing a tender document to a prospective bidder must be disclosed where enquiries are made by a bidder…” But Rule 175 fails this test as it puts the onus on the procuring entity to “take appropriate measures” for breach of the Code of Integrity by bidders. This is inappropriate as the Code covers misconduct by both bidder and procurer, and more often than not, such breaches occur through a process of collusion between the two. Rather, the responsibility for taking action in such a situation should have been with an impartial third party, like the appeal mechanism/the IEM which have not found mention.

The finance minister in his Budget speech of 2015 had posed the question as to whether a law should be introduced to check “malfeasance in public procurement”.

If rules on the subject are considered a lighter version of the law, then the GFR 2017, with its many positive features, can be considered a welcome first step in checking such malfeasance.

The writer is a former member of the Indian Revenue Service

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