Procurement: Seismic Shift!
Prime Minister Modi has retreated and withdrawn the proposed farm laws. A step back for progressive reforms for the farm sector, but a step forward for democracy. Meanwhile, critical reforms are underway, although silently, that can have a cascading impact on our national assets on which we have proposed to spend Rs.110 trillion over the next five years under the National Infrastructure Pipeline (NIP). Public procurement policy norms have been tweaked to allow for quality-oriented procurement. The guidelines issued by the Department of Expenditure’s Public Procurement Division have now allowed the selection of bidders for works and non-consultancy services through alternative procurement methods like quality-cum-cost-based selection (QCBS). So far, under the General Financial Rules (GFR), 2017, which government agencies and ministries had to follow, QCBS was used only for procurement in cases where the quality of consultancy services was of prime concern. Two other additional methods— L1 and single-source selection — were also recommended in GFR 2017. According to the revised guidelines, L1 or ‘least cost selection’, will no longer be the only tendering format to select bidders for projects. L1 was so far the preferred method used by ministries, public agencies and PSUs to select the lowest bidders to carry out standard or routine works/non-consultancy services like audit and engineering design of non-complex works. In times of early infrastructure development during UPA 1 and UPA 2, L1 has driven several private companies to make ridiculous bidsendangering their sustainability. In the L1 system, a bidder is selected only on the basis of the lowest cost with no ‘technical score’ qualification requirement while QCBS evaluates a bidder based on a combination of technical and quality scores. However, the maximum weightage for non-financial parameters should not exceed 30 per cent. The revised guidelines allow procurement agencies to use QCBS where the procurement has been “declared to be a quality-oriented procedure by the competent authority” and where the estimated value of procurement does not exceed Rs.100 million or Rs.10 crore. To declare a project fit for QCBS, a competent authority has been defined and the need for a technical committee comprising independent technical and financial members laid out. QCBS is also the preferred mode for international competitive bidding.The recent arrest of former SBI chairman Pratip Chaudhuri in relation to a complaint by a loan defaulter caused a protest against undue vigilance action in bona fide commercial decisions. This was despite an assurance by FM Nirmala Sitharaman last year while announcing that banks should automatically extend loans to eligible micro, small and medium enterprise sector borrowers without the fear of 3Cs: CBI, CVC and CAG. In a similar vein, the review of decisions taken by the competent authority in procurement deserves proper guidelines to be followed.The Centre has instructed public authorities to refrain from ‘routinely’ appealing against arbitration/court awards relating to disputes involving publicly funded projects, unless there is a compelling case, including a realistic probability of success in court as per the new ‘General Instructions on Procurement and Project Management’,issued on October 29. “There is a perception that such appeals are sometimes resorted to postpone the problem and defer personal accountability. Casual appealing in arbitration/court cases has resulted in payment of heavy damages/compensation/additional interest cost, thereby causing more harm to the exchequer, in addition to tarnishing the image of the government,” the Government said. CW has been seeking this change since September 2016 when I chose to flag this issue under the headline “Unclogging legal and land blocks” in this column.Indeed, with an ever-growing chasm between estimated and actual expenditure, procurement reform maybe truly seismic.This month, our cover story forecasts what lies ahead for the industry. Best wishes for a happy and safe 2022!Links: Open letter to PMUnclogging legal and land blocks