Why the reservation for government tenders is only a glass half full

Karthik Kumar | Updated on June 29, 2020

Hidden terms in tenders, the qualifying criteria and the costs associated with the tendering process are often stumbling blocks to greater participation by qualified businesses

Rolling out the ₹20-lakh-crore Atmanirbhar programme, Finance Minister Nirmala Sitharaman announced that government tenders of less than ₹200 crore would be disallowed for global tenders, in order to prevent ‘unfair competition from foreign companies’. This was indeed a welcome announcement, particularly for MSME companies.

However, this is only a first step. More steps need to be taken to ensure that the fruits of government spending are shared equitably in the MSME eco-system, particularly since the government tendering process is fraught with inequities, small and large. As a result, some companies either do not bid at all or require deep pockets to create special ‘Government sales-only’ departments to deal with the vagaries of seemingly random changes in the tendering processes — be it bid dates, tender terms or specifications. Navigating the shoals of the government tender system is not an exercise for the weak hearted or those unused to shrouds of opacity.

The first stumbling block to greater participation in tenders by qualified businesses are the oft-hidden terms of the tender, which disqualify most potential bidders and leave only the ones favoured by the tenderer in the fray. Examples abound. The most egregious of these was the hunt for a statutory accountant by a leading public sector bank in the early 2000s. The bank had specified a minimum limit of revenues of over a billion dollars for bidders to qualify, leading to a big hue and cry among the auditing fraternity in India before it changed its terms. More commonly, though, seemingly minor conditions, which only those with inside tracks can navigate, continue to be rife.

Alphabet soup of certifications

Consider this recent tender floated for the revamp of a government department’s website which, among its various requirements, lists the following as key qualifying criteria: CMMI certification; number of relevant projects with GIGW compliance — STQC certified and CERT-IN security audited; bidder received at least one international or national (conferred by Central or State government) award for their multilingual websites/Web portal services/products or for their clients in this area; and certification in Indian IT laws for project manager and Web-developer

On the face of it, barring the requirement for certification in Indian IT laws (why should technologists seek certification in law?), the other criteria seem logical — except that, most digital marketing companies would be disqualified for not having the alphabet soup of other certification required. And these are digital companies that serve global corporations in highly advanced financial, technology, communication product-markets, among others.

The ultimate irony, though, assuming the concerned department is particularly diligent in these specifications, is the notification one gets from the browser on keying in the department’s url. The message one sees is: “This website may be impersonating ‘www.xyz.org.in’ to steal your personal or financial information. You should go back to the previous page.” So much for the department’s specifications, particularly when installing a Secure Socket Layer (SSL) to prevent such notifications in the browser is simple and costs only a few thousand rupees!

Magnitude of costs

A second key issue is the cost associated with the tendering process. The aforementioned tender requires a ₹2 lakh earnest money deposit (EMD) to be paid along with the bid. This EMD is adjusted along with the payment for a successful bidder or refunded after a specified period from when the tender closes. In effect, EMD payments are locked up for the bidder, while the government enjoys use of such funds.

That aside, if an MSME business bids for, say, 10 tenders in a month, of a similar magnitude, it implies that ₹20 lakh of working capital is locked up for the firm. Such sums, even with the magnanimous increases to the limits of MSME definitions, are large for any MSME. This is assuming the tender issuer does finalise the tender within the stipulated time and refunds the dues to unsuccessful bidders on schedule.

The author has first-hand experience of an EMD not having been refunded even after 15 years, on the ground that the tender had not yet been awarded, on that occasion by a State public sector undertaking.

Foreign consultants

If these woes are not enough, it appears that government tender issuers are increasingly using the services of foreign consulting companies, of the ilk of BCG, KPMG, McKinsey, et al, to advise them on the writing of project specifications, drafting of tenders, setting selection criteria, and so on. It begs the question why it should do so, given that its procurement managers have several eons of collective experience in procurement, and should have sufficient knowledge not to be bilked by the private sector.

Nonetheless, even if it should employ the expertise of outside consultants, one wonders what expertise a private equity, accounting or management consulting firm can bring to bear on a process that is required to choose buyers based on competence to deliver, and at the optimum price. And, moreover, why should these be foreign companies? Aren’t there enough Indian experts that fit the bill?

There is also the issue of which master such foreign consultants serve. Even while they take money from the Indian taxpayer in advising the government, it would seem that they are undermining the efforts of the government in making business transparent and corruption-free in India. As The New York Times reports with regard to a globally renowned consulting company, “The partner’s plan, … was to ‘respect traditional bureaucratic process including use of bribes.’… the partner had identified eight ‘key Indian officials’ — named in the PowerPoint slide — whose influence was needed for the deal to go through. Nowhere in the slide did the consulting firm advise that such a scheme would be illegal or unwise.” Need one say more!

The Finance Minister would do well to note that the path to an atmanirbhar country is rocky and arduous as it is. It does not need the thorns of gratuitousness and discretionary choices added to it. One hopes this under-brush is cleared swiftly and efficiently so that it is possible to collectively realise the dream of a self-reliant India.

The writer, a Director at Rage Communications, has over 40 years of experience in analytics and marketing communications.

Published on June 29, 2020

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