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Effective Public Procurement Policy-need of the hour!

Harsh Sinha comments on how an effective public procurement policy is currently the need of the hour.

Public procurement has a significant impact on our everyday lives as it plays a key role in the creation of both social and economic infrastructure like roads, schools, hospitals, provisions for drinking water and sanitation etc. Studies have shown that sectors like railways, defence, health, and telecommunication have allocated significant portions of their budgets to public procurement. In light also of the fact that public procurement system in India accounts for roughly 30% of the country’s GDP, the importance of having an ‘effective’ public procurement system can never be understated. In an ideal world, (public) procurement should mean acquisition of goods or services at the best possible cost, in the right quality and quantity, at the right time, in the right place and from the right source, for the ultimate benefit of the people at large. Of course, the world we live in is far from ideal and public procurement is also plagued by practical problems.

One of the most common and popular mechanisms of public procurement is the ‘tendering system’. Seen from a macro level, this usually involves the following stages: identifying the broad scope of work and prescribing technological specifications/standards (or minimum acceptable quality standards) by the Government (or agency or authority concerned); inviting tenders from various interested parties (technical and financial bids being usually invited separately); evaluation of technical bids, so as to shortlist bidders whose financial bids would be evaluated; evaluation of financial bids of the shortlisted bidders, so as to identify the bidder that can provide the goods or services to the Government at the lowest cost; executing a legally binding contract with such shortlisted bidder.
If public procurements are competitive, they would result in the selection of the most efficient/competitive seller (the one providing the goods or services) to the buyer (the Government) ensuring maximum savings for the latter and, consequently, the tax payer. However, experience tells us that public procurements are not always competitive. Perhaps one of the more common maladies afflicting public procurements is ‘bid rigging’ or ‘collusive bidding’. Some of the so-called competing firms would coordinate with each other, in some form or the other, with an objective to affect the outcome of the tendering process in a manner conducive to them. For instance, in what is known as ‘bid suppression’, one competitor would deliberately refrain from bidding so that the contract gets awarded to that competitor, which the group of coordinating firms had agreed upon (obviously, the firm/firms withdrawing would get something in return from the firm getting the contract). In another situation, over priced bids would deliberately be placed by the coordinating competitors not with the intent of getting (the bid) approved but to make the tendering process appear genuine and ensure that the contract gets awarded to another so-called competitor. In some cases, the losing bidder(s) (having lost out due to deliberately quoting high) may, in lieu of its/their cooperation, get sub-contract(s) from the successful bidder. The above are just some of the forms of collusive bidding with the ultimate end being to distort the outcome of a tendering process, so as to achieve a particular desired result.
Whilst it may happen that collusion between the bidders (some of them) and the procurers (some corrupt officials involved in the procurement process) results in a bid getting rigged, bid-rigging is not the only example of the rampant corruption in our procurement processes. Unfortunately, the danger of corruption lurks at every stage of the so-called procurement process, at times, the very demand (in the first place) for a good or service is ‘artificially’ created or inflated by unscrupulous persons so as to benefit private parties; confidentiality of bids are abused; specifications are added or tweaked at the last moment before submission, to favour a particular bidder, after awarding the contract, corrupt officials may accept contractor’s (unjustified) requests for escalation of costs, thereby enriching the contractor and causing a loss to the Government, and so on and so forth.
It is not that our public procurement system or process is free from all checks and balances however, an institutional framework governing exclusively the ‘public procurements’ is conspicuous by its absence. There is not one body or agency regulating public procurements, there are many. The Government of India has framed rules for procurement of goods and services and contract management . Bodies like the Central Vigilance Commission (CVC), Comptroller and Auditor General (CAG), the Central Bureau of Investigation also play an important role in the governance of public procurements but that role is, at best, only ex-post facto. These agencies or authorities come into play only after an alleged irregularity or malpractice has taken place and can do little to prevent such irregularities or malpractices. Interestingly, the Competition Commission of India (CCI) also has an important role in the regulation of public procurement, a role different from that of CVC, CAG or CBI. CCI does not have the mandate to investigate into alleged corrupt practices or into any other act done, or omitted to be done, to cause benefit (illegally) to a particular party (contractor). CCI would intervene if any such alleged malpractice causes (or could cause) an appreciable adverse effect on competition in India. In other words, if an alleged irregularity does not cause (likely to cause) appreciable adverse effect on competition, CCI will not have a role to play. It is, however, important to note that the Competition Act, 2002 (“CA”) presumes that any agreement between enterprises or persons (engaged in identical or similar businesses) which, directly or indirectly results in bid rigging or collusive bidding will have adverse appreciable effect on competition .
Under the CA, such agreements are void. So, if there is any agreement between the coordinating firms resulting in bid rigging, such agreement shall be presumed to be anti-competitive and, consequently, void; the role of CCI in such cases is also preventive. So, where corruption and anti-competitive practices get intertwined in a procurement process, multiple agencies may get involved in the investigation, in accordance with their own respective mandates, which may (though not always) result in a turf war of sorts, depending on how the mandate is interpreted by the concerned authority or agency.
What is needed today is to make our procurement processes more efficient and our policies more objective, so as to prevent (to the best extent possible) malpractices, be it corruption or bid rigging. There would certainly be divergent views as to how best to achieve this rather general (ideal) goal. Formulating a contemporary, scientific and consolidated ‘public procurement policy’ would be the first thing to do, but this is a process by itself; a process involving various stages and activities, each stage and activity being very meticulously and scientifically planned with attention to detail. Needless to say that such an exercise cannot be carried out in vacuum; the Government will necessarily have to involve experts (not associated with the Government) from related fields to get a more broad based view on the issues. We are more or less aware of the problems plaguing our procurement processes, what this policy should aim to do is offer feasible solutions to minimize, if not completely eliminate, such problems.
The more the number of objective views on the table, more is the probability of finding a feasible (and objective) solution, for instance, as desirable as it is to eliminate corruption, it may not be practically possible to make our systems impervious to corruption but, we can try to build our systems in a way that chances of corruption are reduced significantly. It may also be worthwhile studying the systems designed or followed by other nations (or groups), viz. EU and USA or OECD and customize (to the extent possible-keeping our own social, economic and political conditions in mind) them harmoniously into our systems. Any policy, however well formulated, is only as good (or bad) as it’s implemented; the policy itself must contain an effective implementation mechanism.
The government devotes a large share of taxpayers’ money to public procurement and the onus, therefore, is on the Government to make sure it gets good value for money. Whatever policy Government frames, the ultimate goal of serving public interest can never be lost sight of.
HARSH SINHA is a Partner with Kaden Boriss Partners.
  1. Ministry of Finance has issued the General Finance Rules which, inter alia, prescribe the broad rules and procedures for the procurement of goods and services and for contract management.

  2. Section 3(3)(d) of CA provides that- Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which-directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition.

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