Issues in Public Procurement The Public Procurement Bill 2012

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The author is President, Centre for Digital Economy Policy Research;
Director, South Asia, Hewlett Packard

Dr Jaijit Bhattacharya
, President, Centre for Digital Economy Policy Research; Director, South Asia, Hewlett Packard
Arijit Sen, Chair, Public Procurement Cell, Centre for Digital Economy Policy Research; Director, Government Relations, South Asia Lead Advisor, Global Government Policy, Hewlett Packard

The prime objective of any government procurement is getting the right product or service, at the right price and quality and at the right time. Government Procurement accounts for approximately 20% of India’s GDP. However, public  procurement processes, which are governed at the Centre by the General Financial Rules, 2005, are widely perceived to be vulnerable to corruption, collusion, fraud and manipulation. Therefore, there is a need for a single set of robust guidelines for public procurement in India which would mitigate the current situation.

In order to strengthen the public procurement process, the Government of India has already taken a stand to streamline all public procurement. As a first step, the government, through the Ministry of Finance, has formulated a draft Public Procurement Bill 2012 which will govern the procurement process for all central government and PSUs in the country.

The Draft Procurement bill 2012 however faces the challenge of aligning all other regulations and legislation that impact Public Procurement in India. This includes alignment in the areas of ‘green’ procurement, support to innovation, appropriate penalties for both vendor and procuring entity alike, vendor development programmes for SMEs and a mechanism  for procurement based on lifecycle costs.

Green Procurement

As advised by the Prime Minister’s Climate Change Council, all government procurement in India is scheduled to go ‘green’ by mid 2013. Under the PMO’s directions, the Planning Commission has set up a core group comprising senior representatives from government departments, including BEE, DGS&D, MoEF, CPCB, Defence, Railways, and select industry associations like CII.

As a part of the move towards green procurement, BEE has sent a proposal to DGS&D today for procurement of energy efficient goods.  Should this be accepted by DGS&D, then for future procurement DGS&D would either give a ‘preferred vendor’ status to suppliers who comply with the BEE labeled products (laptops and Office Automation equipment for now) or the next Rate Contract could be only for products which are energy efficient as per the India specific requirement, which is BEE labeled.

While this effort is laudable in itself, it throws up two distinct challenges for procurement which are (a) there is need for a crisper definition of ‘green’ and (b) there is a need to have clear processes for managing the labelling on imported products such as office automation products, such that when their packaging are opened locally for inserting the required labels, such products should not treated as second hand products.

Support to Innovation

DGS&D procurement rules follow a process whereby unless there are a minimum of three bidders who can supply to the specifications in the Rate Contract, the RC stands cancelled. By definition, an innovative product will be the only product in the market in the initial stages. The current process prevents the innovative company the chance to bid, thus inadvertently discouraging procurement of innovative products. While the PPB 2012 allows single vendor procurement under specific conditions, there needs to be a clear connect between the Bill and the DGS&D rules in this respect.

The matter is further compounded by the fact that the procurement processes prevent product upgradations midcourse through a rate contract. This raises challenges for the IT industry, as rate contracts are typically for one year, while there are component upgradations every quarter. Under the current norms, each upgradation would necessitate a revision in the specifications outlined in the rate contract. The OEMs are thus in a position where they may have to stock up a year’s supply to provide obsolete products to the  government. It is a lose-lose situation. The PPB should allow for product upgradations as and when industry moves forward, as long as there is no upwards price revision.

Disproportionate penalties for vendors and procurement agencies

As per PPB 2012, it is mandatory for all potential vendors to inform the procuring entity on any blacklisting of the vendor by any government  agency across the world in the previous three years. Based on that information, the Indian government reserves the right to debar the vendor for a period of two years from bidding for any rate contracts. Given the complexities  of doing business with various kinds of government agencies globally, the above clause would essentially debar almost all multinational vendors. This clause requires rationalization in order to strengthen the procurement process.

Public Procurement is a challenging issue. Besides the above challenges, Public Procurement also need to address issues of vendor development programmes for SMEs and a mechanism for procurement based on lifecycle costs. The PPB 2012 is a step in the right direction that needs to be further strengthened with the above guidelines/clauses.

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