September 2010

The process accelerator

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A few rollouts exemplify that adoption of e-procurement systems can bring in unprecedented efficiencies in governments

By Pratap Vikram Singh

Gone are the days when procurement and tendering process could take as many as 180 days. E-procurement has brought purchase-and-sales cycles in the government down to 30-40 days. No wonder then, e-Procurement has been included as an integrated Mission Mode Project under the National e-Governance Plan (NeGP).

Essentially, procurement means timely acquisition, purchase and delivery of goods, works and services at the best possible total cost of ownership to the customer. It includes estimate or indent preparation, tendering, contract management, catalogue management and auction, and caters to procurement of all types—works, goods and services.

Despite the huge financial savings accrued through lowered bid values, shortened procurement cycles and transparencies in the system, the adoption of e-procurement systems can still be termed as poor. Though some of the states, including Andhra Pradesh and Karnataka are quite ahead in reaping the benefits from the automation of the procurement process, many other states and central ministries and departments are still following the traditional,  manual system of procurement, plagued by wide spread inefficiencies and lack of transparency that throttles fair business and competition among suppliers.

Commenting on the adoption of e-procurement at Government of India bodies, V Ramachandran, Chief Technical Examiner, Central Vigilance Commission, said, “The overall adoption has been quite slow. In a circular issued by the Government of India, all central ministries and departments were to adopt e-procurement by April 2009. However, roughly 35 percent of the departments have adopted automation of the procurement processes, but partly.”

Some organisations have made good progress though. Centre for Railways Information System of the Indian Railways is doing good work in furthering e-procurement across the department. The pilot on e-procurement in the Northern Railway zone has been completed and in the near future it is to be scaled up to each zone in the country. Gas Authority of India too is way ahead of others in adoption and usage of e-procurement. Besides, Ministry of Coal is doing quite well with its e-auction system being in place.

On e-procurement adoption in Karnataka, MN Vidyashankar, Principal Secretary, Centre for e-Governance, Government of Karnataka, said, “Only few states in India have currently adopted e-procurement. Even Government of India and PSUs are yet to adopt it. The state of Karnataka has been successful in implementing e-procurement in more than 63 government departments, agencies or organisations, with more than Rs 33,000 crore worth of procurement already handled since early 2008.”

In Chhattisgarh, “Currently, around 4,864 tenders worth Rs 15,020 crore have been processed. The adoption of e-procurement by different government departments and organisations in Chhattisgarh offered the solution of transforming the traditional tendering process to a transparent online tendering system,” AM Parial, Additional CEO, Chhattisgarh Infotech and Biotech Promotion Society (CHiPS) said.

Giving details on the state of adoption in Andhra Pradesh, M Vidydhar, Project Manager, e-procurement, Govt of Andhra Pradesh said, “E-procurement is implemented successfully in 26 government departments, 39 PSUs, 126 municipalities and 14 universities spread across length and breadth of the state. Since the inception of the project in January 2003, the portal has processed 106,532 transactions worth Rs 194,068 crore or US$ 36 billion.”

Legal compliance and security

On January 30, 1997, the General Assembly of the United Nations, by a resolution, passed the Model Law on Electronic Commerce adopted by the United Nations Commission on International Trade Law. Following the suit,Indian IT Act was passed in the year 2000.

The IT Act 2000 mandates use of digital signature in e-procurement. It provides legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication, commonly referred to as electronic commerce, which involve the use of alternatives to paperbased methods of communication and storage of information, to facilitate electronic filing of documents with the government agencies.

The Central Vigilance Commission has provided the stakeholders in e-procurement with a comprehensive list of security specifications.

Elaborating on the security the compliance issues, Parial of CHiPS said, “CVC and other national and international guidelines for government procurement are designed with the ethical principles to achieve equity and economy.”

Sujeet Bhatt, Director Technical at Nex- Tenders, a company that specialises in e-Governance, opined, “The Central Vigilance Commission has issued a circular that provides a checklist to achieve security considerations in e-procurement for organisations interested in implementing the solution.”

He further said that CVC has mandated the availability of security features as stated in this checklist for all government organisations having implemented or in the process of implementing an e-procurement solution.

Vivek Agarwal, CEO of C1 India, an e-procurement solutions company, said, “All e-procurement solutions in India need to follow guidelines established by CVC and the provisions as laid under IT Act 2000. For projects funded by the World Bank, procedures and guidelines set by them need to be followed.”

Putting the state laws into the given perspective, Vidyashankar said, “e-procurement needs to comply with guidelines, acts and rules of the concerned state for its implementation at the state level. For example, the e-procurement solution of Karnataka complies with the Karnataka Transparency in Public Procurement (KTPP) Act.”

The use of digital signatures in electronic procurement has been mandated in almost all legislations, CVC directives and international standards set by organisations like United Nations and World Bank. Nevertheless, the awareness and education on using this cryptographic security mechanism at the government and citizen levels is not satisfactory. From the time a bid is submitted online, to its saving into the virtual tender box, and then to its opening, security is of paramount importance. The digital signatures are a must
to ensure the non repudiation and authentication of the users and the participants in the procurement process.

“It’s quite unfortunate that the awareness on the usage of digital signatures is not encouraging among the government bodies.” Moreover, The Net banking system is still based on the user name and password authentication mechanism,
and so it is vulnerable to illegal access. Still, the use of digital signatures in financial transactions is a distant dream. The Reserve Bank of India has come up with a circular that mandates use of digital signatures in every online financial transaction, including banking and e-procurement related transactions. It has set a deadline of April 2011 for the banks and other institutions to adopt usage of digital signatures,” Ramachandran said.

Holding a positive view on the use of digital signatures, Bhatt said, “Digital signatures are being used by thousands of suppliers and buyers in all our deployments.”

Return on investment

With the posting of tender information on e-procurement website, the stakeholders have saved from investing in paper work and publishing ads in national dailies. The bid participants can access and download the tender document without any hassle. Earlier, because of vested interests, the tender document itself was sometimes not accessible by all.

The participants now need not come to the bidding centre to participate in the bidding process. With Web browser-based software, bidders can participate while sitting in any part of the world.

For e-procurement service providers, the increase in bidder participation has resulted in increased transactions, which in turn has increased the fee collection.

Recalling the benefits derived from e-procurement deployment, Bhatt of NexTenders said, “In our experience, an average large government agency or state government which properly implements a robust e-procurement system can expect one-time savings of 10-30 percent and recurring savings of three-five percent annually through increased process efficiencies and throughput. When you are dealing with budgets in thousands of crores, this is substantial.”

Putting forth the observations from Chhattisgarh, Parial stated, “Effective and innovative procurement has transformed service delivery and realised significant savings for our state. Efficient procurement benefits everyone—the state, agencies, suppliers and citizens. By achieving economies and efficiencies through procurement, the state could improve its effectiveness and also stimulate the state’s economy.”

The e-procurement platform of Karnataka has been instrumental in savings to the tune of 10 percent of the value of procurement due to a competitive bidding environment. Some of the departments have achieved negative premium on tenders, which was not thought of earlier in traditional mode of procurement.

“Also, the reduction in the procurement cycle enabled the departments to do faster procurement. The cost savings and reduced procurement cycle times are the motivating factors for adoption of e-procurement in government departments. This is evident from the fact that the number of departments using e-procurement platform has increased from five in 2008 to more than 63 till date in Karnataka,” Vidyashankar said.

Implementation challenges

For an e-Governance project, the most basic hurdle remains the resistance to adopt new technology. Here, capacity building measures through regular training and change management assumes utmost importance. Vested interests of certain officials in the government is also one of the causes of resistance,and has been a major hurdle in the adoption of e-procurement in many states and government departments.

On addressing the implementation hurdles, Agarwal says, “Change management and buy-in from various stake holders is crucial for smooth implementation of e-procurement projects. Another aspect that needs to be taken care of is the training on the processes involved.”

Parial said, “Implementation of the project requires not only technological solution but also process re-engineering and most importantly change management. This makes implementation of e-procurement a very complex project. The complexity acquires an altogether different dimension on account of the change management involved. Intrinsically, there is resistance to change any organisation and government is no exception to it.”

Bhatt agrees, “The main challenge is buyer and vendor resistance. This is best dealt with by using a graduated carrot and stick approach. Successful implementations usually start with clients mandating the use of e-procurement for high-value tenders and then gradually reducing the threshold value to bring more and more vendors on board.”

“In some cases, manual bidding is allowed in parallel for a short time to ease the transition, and some governments have even offered monetary incentives for bidding online. Education and training hold the key, and experience shows that once stakeholders experience the benefits of e-procurement firsthand, there is no looking back. Availability of infrastructure like electricity and Internet access still remains a challenge in some remote areas,” he added.

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