In less than two months, India will have a new Central government. Meeting the electorate’s expectations for good and corruption-free public services will be one of the government’s biggest challenges.

E-governance, an important tool through which public services can be improved, will involve large scale procurement of services from private sector IT service providers.

But this comes up against a civil service mindset that has become increasingly reluctant to take decisions on matters with financial consequences, given the recent spate of inquiries and trials. Without specific measures to overcome this, execution may be painfully slow.

In principle, public procurement should aim at achieving ‘best value for money’ for the public. Indeed, the age-old canon of propriety is that an officer should exercise in the use of public funds, the same degree of care and prudence that he would, in the expenditure of his own funds!

This has somehow been taken to mean that ‘best value’ is that which is procured at the lowest cost. But ‘value’ includes both pecuniary and intangible benefits: car buyers using their own money do not always buy the cheapest car.

Of course, unlike a private company or individual, best value, in the context of public procurement of services, must also take into account notions of ‘fairness’ (in the sense of fair opportunity for different sellers) and probity. These two requirements are both legally necessary and morally imperative. Thus ‘best value’ must be attained without sacrificing probity or fairness.

Cheapest not the best

The primary means of ensuring fairness and probity is through procedural safeguards. In India, these safeguards are largely found in executive orders and instructions (e.g. the General Financial Rules or GFR in the Central Government).

Despite the existence of strong and ever-tighter procedural safeguards, corruption is perceived to have increased in recent years.

While some cases of corruption have involved violations of procedural norms, most (especially those not detected) have not.

On the other hand, some projects generally considered to be successful and well executed like the Delhi Metro witnessed some procedural violations which — had they occurred in a different organisation — might have attracted odium.

Compounding the problem is a more recent phenomenon where issues of ‘probity’ and/or ‘fairness’ of decisions have been questioned on the basis of hindsight with information not available to the decision makers when decisions were made.

The question is no longer about ‘have we got the best possible product or service at the best possible price under our circumstances’ but rather ‘which is the most defensible decision in the court of law and the court of (media-led) public opinion’.

This is producing large delays and many sub-optimal choices.

Tendering for services

One problem is that the procurement procedures are largely designed for civil works and goods which are generally procured by choosing the lowest tender which meets the minimum quality specified.

Adaptation to services has been haphazard. A key difference in services is that much of the value stems from the quality and competence of the service provider and not from the cost of the proposal.

Service quality is not easy to specify in a ‘pass-fail’ manner as is normally done for goods and works; a pass-fail system produces the ‘lowest quality above the prescribed minimum’.

One can think of the analogy of recruiting a tutor for one’s child by specifying a minimum qualification of a Degree and then choosing the applicant asking for the lowest tuition fee: one is likely to get a tutor who scored just the pass mark and who may not be good at teaching.

The provisions of the GFR on service procurement are rudimentary. They do not provide sufficient procedural guidance to officers who wish bona fide to carry out a proper procurement.

A series of procedural changes are necessary to improve efficiency (in terms of speed of processing and the obtaining of best value) while preserving safeguards for fairness and probity.

The GFR should be amended to explicitly permit the use of new procedures which are already used in the public sector elsewhere in the world and even in India, especially for externally-aided projects.

The first is the method of ‘quality-cum-cost based selection’ (QCBS) whereby evaluation of tenders is done through marks for quality and marks for cost quoted by the bidder, with the winner decided through the combined marks. Absence of guidelines increases the chances of procedural error and even corruption. To avoid these risks, officers sometimes resort to pure price-based tenders which can result in low price but sub-standard quality of service.

Guidelines should be issued specifying essential steps to ensure fairness (e.g. deciding the marking scheme before opening bids, not opening price bids till technical evaluation is finished and so on). For large bids or new kinds of work, transparent and open pre-bid consultations should be required before finalising criteria, minimising surprises and challenges at evaluation stage.

Fixed cost method

Another method which should be introduced is ‘Fixed Cost Selection’ (FCS). For repetitive types of work which can be quantified well, the FCS method eliminates the complications of price comparison.

The tendering authority (perhaps with the aid of specialised consultants) prepares an estimate (including milestones and timing of payment) of what would be the reasonable cost. That then becomes the fixed cost of the contract.

Bids are invited disclosing the fixed cost and evaluated purely on their technical merits without discussion or evaluation of price because the price is fixed in advance.

Regardless of which firm is selected, the amount payable remains the same. A margin of, say, 10 per cent for physical contingencies/ additional work arising during execution may be allowed.

The scope for corruption through pricing changes is eliminated and the decision maker cannot cause a financial loss or gain to the government.

The selection is free from fear of allegations of causing ‘avoidable loss’ or ‘infructuous expenditure’ from the audit angle or ‘wrongful loss without public interest’ from the anti-corruption angle.

The only remaining issue is fairness among the bidders which is less susceptible to controversy when no financial loss is involved. (to be concluded)

The writer, who is Director at the World Bank, is an IAS officer. The views are personal

comment COMMENT NOW