A new era in public procurement

News: Recently, the Department of Expenditure in the Ministry of Finance, issued a notification on the General Instructions on Procurement and Project Management.

These instructions set out a number of desirable actions in government purchases of works contracts and services. Currently, these are applicable to only Central government entities and Central public sector units.

The recent changes proposed will improve the ease of doing business in India.

What are the key changes notified to address the persisting challenges in public procurement?

– Tough stance taken on delayed payments: It mandates that payments of not less than 75% of eligible running-account bills, shall be made within 10 working days of the submission of a bill.

The remaining payment after final checking of the bill is to be made within 28 working days of submitting the bill. The final bill should also be paid to the contractor within three months of completion of work.

It also stipulates that public authorities may put in place a provision to pay interest in case of delayed payment of bills by more than 30 working days. This is a welcome move for the private sector.

Facility for contractors to track online the status of their bills: All project executing authorities implementing contracts involving aggregate payments of more than Rs 100 crore per annum are instructed to have an online system for monitoring the bills submitted by contractors.

On arbitration and dispute resolution: It instructs that where there is a decision against the government or a public sector enterprise, the decision to appeal should not be taken in a routine manner.

The decision must first be reviewed by a special board or committee before an appeal is filed against an order.

Further, it instructs paying 75% of the arbitral award to the contractor or concessionaire against a bank guarantee (BG) in cases where ministry or a department has challenged an arbitral award.

The rules for selection have been reset: For all consultancy bids, three methods of procurement are already allowed and in place. They are

– QCBS (Quality and Cost-Based Selection)

– LCS (Least Cost System)

– SSS (Single Source Selection)

It now allows for FBS (Fixed Budget Selection) where the price is fixed, and selection is by maximum merit.

Lowest Cost Winner framework is dismantled

For “works and non-consultancy services”, the notification has opened up the QCBS route, which was not generally allowed earlier.

Under QCBS, the maximum weight of the non-financial parameters is to not exceed 30%. So, finally, the much-criticised L1 (Lowest Cost Winner) framework has sought to be dismantled.

Allows single bids

It says that, even when only one bid is submitted, the process should be considered valid. Provided the procurement  had met the following criteria

– Satisfactorily advertised,

– Sufficient time was given for submission of bids,

– Qualification criteria were not unduly restrictive

– The bid was  found to be reasonable.

What are the issues that have not been addressed?

Firstly, the limitation of a maximum 30 per cent weightage for non-financial scores in QCBS shows a lack of boldness in propagating this format.

Secondly, the document is silent on Swiss Challenge as a method of procurement.

Thirdly, escalation formula provided in the contract documents are not suitable to cover non-routine increases in price for basic materials for construction and need to be addressed.

Fourthly, the phenomenon of “irrational bidding” exists where the Indian private sector has not distinguished itself in the past. Mechanisms need to be put in place to eliminate this through statistical measures or enabling discretionary judgement.

Fifthly, the concept of “independent engineers” needs rectification, including who hires and pays them.

Sixthly, the QCBS method needs to be made applicable to purchase of such sophisticated goods also not just works and services. Goods are currently excluded.

Seventhly, the new provisions haven’t addressed the issue of “consequence management.” What happens when public officials do not adhere to these guidelines? More elaboration on this aspect is needed.

Finally, Bureaucrats continue to be worried about post-facto action for decisions. Safeguards on this front should be added in any such procurement reform.

Source: This post is based on the article “A new era in public procurement” published in Business Standard on 7^th Dec 2021.