Public procurement rules are a maze

The current demonetisation drive begs to be complemented by measures which will prevent generation of fresh black money.

One of the major areas for achieving this goal is through reforms in public procurement, recognised by the UN Convention Against Corruption, which India ratified in 2011. Public procurement, or the system of government contracting being followed by India, is still governed largely by the General Financial Rules (GFR), last consolidated in 2005.

Businesses today feel that these rules are unable to counter corruption. They do not reflect many imperatives which public procurement regimes need to satisfy to meet the complex needs of a modernising economy, especially in their tendering modes andtransparency rules, which are not helpful in promoting the small scale sector. Besides, what is lacking are provisions to encourage sustainable public procurement, mechanisms to redress grievances of bidders andmarket access norms.

Several public contract rules are not in harmony with each other, creating confusion, and breeding corruption. Moreover, these rules, like the GFR, are binding only on government procuring authorities, and not on suppliers, and so are inadequate to ensure a level playing field.

Therefore, business feels that there is the need for an updated single, overarching public procurement legislation, which will clear the confusion besetting public procurement in India — and which has led to so many shocking instances of procurement “scams”.

At the same time, the new regime should not be so heavy-handed that it stifles business initiative. Over-regulation is the main issue for which the Public Procurement Bill, 2012 failed to gain traction. Businesses, including the major central PSEs, private sector majors and the SMEs — in a consultation on an appropriate public procurement regime for India held in New Delhi June 2016, by the UN Global Compact India — have expressed the need for a government contracting law which will be more angled towards enhancing ease of doing business.

Some important features for incorporation in the amended public procurement law suggested are: First , its coverage should be such that it has no monetary threshold; it covers every sector, excepting emergency procurement under the Disaster Management Act, 2005, and procurement for national security.

Second , its competition remit should incorporate new forms of tendering to cover complex procurements, where the procuring agency may not know in advance the technical/financial/legal means to identify its procurement needs. It hence enters into a dialogue with qualified bidders to set these specifications/select options with the best price-quality ratio, while maintaining such neutrality that none of the dialogue partners has access to more information than any of the others. The competition remit should include measures to prevent conflict of interest and price considerations dominating over quality considerations in public procurement. There should be a system to question the genuineness of abnormally low-priced tender offerings.

Next, its Single Source Procurement provisions should be such as to contain preventive measures for abuse of monopoly powers by both the procuring agency and the sole supplier. There should be a provision that the official responsible for the single source procurement should certify that s/he has concluded that no other make or model is acceptable; reasons for so holding should be recorded.

Transparency provisions should incorporate mechanisms to guard against electronic procurement creating a ‘digital divide’ between the tech-savvy and those inexperienced in digital technology; they should ensure that sensitive information submitted by suppliers is kept confidential.

SMEs should also be extended special help through the transparency measures to be adopted, like automated e-mails to their industry associations, notifying them of the invitation to tender.

The market access remit should be such that it allows the government procurement market in India to be open de jure to non-domestic bidders, while allowing flexibility for de facto closing of the market as and when required for safeguarding domestic industry, or for extending preferences to the SMEs/other disadvantaged sectors.

This would be within our rights as a member of WTO, as government procurement is not governed by WTO rules.

The objectivity of the grievance redress mechanism in the amended law should be ensured through government appointing independent Ombudsmen, with a remit that they are to maintain a balance between equity and sustainment of business initiative.

Penal provisions should include debarment for infringement of probity norms, but the provision in the original Public Procurement Bill, 2012, for double punishment under the procurement law for offences already punishable under existing Indian laws, should be dropped, so as avoid undue hardship to businesses.

‘Sustainable Public Procurement’ norms should be incorporated in support of the modern business ethic of responsible stewardship of natural resources, but this should be tempered by what is do-able in the Indian context; for instance, adherence to energy efficiency could be given preference in evaluation of tenders for award of contracts. Sustainable evaluation criteria should also encompass social responsibility clauses, impacting particularly the SMEs.

The Government is now occupied in the exercise of updating the General Financial Rules and the Manual of Policy and Procedures for Procurement of Goods, Services and Works. It would be in the fitness of things if the views of the business and industry, for a business-friendly public procurement regime, are taken on board in the updated rules— in case, for some reason, it is felt that introduction of a law on public procurement is not appropriate right now.

Regulatory change in public procurement is bound to have substantial economic impact, given that government contracts are annually, on average, valued at about 30 per cent of India’s GDP and cover almost every sphere of government activity. It will also improve India’s rank in the anti-corruption and Ease of Doing Business indices.

The writers are with UN Global Compact India

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