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Procurement of goods and services by the government
 
Government departments and organizations follow different procedures for procurement at the Central, State or Local level. We have already discussed terms which are present in specific tenders and ways to identify outstanding tenders.
In this chapter, we shall study the broad guidelines followed by the Central Government and its Ministries in procuring products and services.

The General Financial Rules, 2005 lay down the general rules applicable to all Ministries or Departments of Central Government, regarding procurement of goods or services required for use in the public service. These guidelines define the parameters within which the ministries and departments purchase goods and services. While they are not binding, they are internal departmental instructions which are followed by the ministries.

How do central government ministries and departments typically procure items of common need and consumables which are frequently required?
Central Government ministries and departments are empowered to independently make their own arrangements for procurement of goods. If a ministry or department does not have the required expertise, it may forward its requirement to the Central Purchase Organization with the approval of the competent authority[1]

The Central Purchase Organization concludes rate contracts with registered suppliers[2], for goods and items of standard types, which are identified as common user items and are needed on recurring basis by various Central Government Ministries or Departments.
Rate contracts are agreements between purchasers & suppliers to supply stores at specified terms & conditions over a predetermined period, usually one year. There is no minimum purchase requirement, and orders are placed on a need basis during the period. Items of low value & small expenditures of less than Rs. 5 crore per annum or scarce/critical/short supply items are not suitable for rate contracts.

All firms, who are in the business  of  manufacturing,  stocking  or   marketing of stores are eligible for  DGS&D (the  Central  Purchase  Organization of Government of India) registration  if  otherwise   suitable,  subject  to conditions or restrictions for specific categories. The procedure to register with DGS&D is given on http://www.dgsnd.gov.in/regguid.htm.
 
How are inquiries sourced?
Depending on the estimated value of the procurement, the Ministries or Departments procure goods by following the standard method of obtaining bids in Advertised Tender Enquiry, Limited Tender Enquiry and Single Tender Enquiry. Limited Tender Enquiry (which does not require public advertisement) method may be adopted when estimated value of the goods to be procured is up to Rupees Twenty-five Lakhs. Copies of the bidding document should be sent directly by speed post/registered post/courier/ e-mail to firms which are borne on the list of registered suppliers for the goods.[3] All the terms, conditions, stipulations and information to be incorporated in the bidding document are to be shown in the appropriate chapters titled as Instructions to Bidders, Conditions of Contract, Schedule of Requirements, Specifications and allied Technical Details,  Price Schedule, Contract Form, other Standard Forms, if any, to be utilized by the purchaser and the bidders.
 
Limited Tender Enquiry
Limited Tender Enquiry method may be adopted when estimated value of the goods to be procured is up to INR 25 Lakhs. Copies of the bidding document should be sent directly by speed post/registered post/courier/ e-mail to firms which are borne on the list of registered suppliers for the goods.[4] The number of supplier firms in Limited Tender Enquiry should be more than three. Further, web-based publicity should be given for limited tenders. Purchase through Limited Tender Enquiry may be adopted even where the estimated value of the procurement is more than Rupees twenty-five Lakhs, in the following circumstances. (a) The competent authority in the Ministry or Department certifies that the demand is urgent and any additional expenditure involved by not procuring through advertised tender enquiry is justified in view of urgency. The Ministry or Department should also put on record the nature of the urgency and reasons why the procurement could not be anticipated.(b) There are sufficient reasons, to be recorded in writing by the competent authority, indicating that it will not be in public interest to procure the goods through advertised tender enquiry. (c) The sources of supply are definitely known and possibility of fresh source(s) beyond those being tapped, is remote.
 
Single Tender Enquiry
In the following circumstances, the Single Tender Enquiry method should be adopted:
(i) It is in the knowledge of the user department that only a particular firm is the manufacturer of the required goods. (ii) In a case of emergency, the required goods are necessarily to be purchased from a particular source and the reason for such decision is to be recorded and approval of competent authority obtained. (iii) For standardisation of machinery or spare parts to be compatible to the existing sets of equipment (on the advice of a competent technical expert and approved by the competent authority), the required item is to be purchased only from a selected firm.

Proprietary Article Certificate is to be provided by the Ministry/Department before procuring
the goods from a single source which should mention:-
(i) Name of the manufacturer of indented goods
(ii) Reasons stating why no other make or model is acceptable
(iii) Concurrence of finance wing to the proposal
(iv) Approval of the competent authority
 
Advertised Tender Enquiry
For invitation to tenders for procurement of goods of estimated value Rs. 25 lakh and above, Advertised Tender Enquiry method should be adopted. Advertisement in such case should be given in the Indian Trade Journal (ITJ) and at least in one national daily having wide circulation.
 
An organization having its own website must also publish all its advertised tender enquiries on the website and provide a link with NIC (national informatics centre) website. It should also give its website address in the advertisements in ITJ and newspapers.
 
Proprietary Article Certificate is to be provided by the Ministry/Department before procuring
the goods from a single source which should mention:-
 (i) Name of the manufacturer of indented goods
(ii) Reasons stating why no other make or model is acceptable
(iii) Concurrence of finance wing to the proposal
(iv) Approval of the competent authority
 
Typical timelines for submission of bids
  • Three weeks from the date of publication of the tender notice or availability of the bidding document for sale, whichever is later;
  • Four weeks, where the department also contemplates obtaining bids from abroad, for both domestic and foreign bidders.[5
What are the parameters for preparation of the bid document and decision-making process
The purchasing department is required to follow certain broad principles while inviting bids, as follows:
  • it must list out clear specifications for goods required, keeping in view the specific needs of the procuring organization. There are guidelines to ensure procurement is not superfluous or excessive, to avoid unwarranted expenditure or inventory management costs
  • the invitation procedure should be fair, transparent and reasonable
  • the procuring authority should be satisfied that the selected offer adequately meets the requirement in all respects
  • The price of the selected offer must be reasonable and consistent with the quality required as per the opinion of the procuring authority
  • The concerned procuring authority must keep records of the factors which weighed while it made the procurement decision at each stage of procurement.
 
Can the award of a contract by a ministry / department be challenged by a bidder?
A bidder has the right to be heard if it feels that the proper tendering process has not been followed or that its bid has been wrongly rejected. Such representation has to be sent to the specified authority within one month of the adverse order and be responded to by the said authority within one month thereof. In other cases, the decision of a contracting authority is final unless challenged before the high court. Judicial review would lie before the high court of the relevant state. This is in exercise of the writ-issuing powers conferred on the high courts by the Constitution of India.

Other types of contracts and special payment mechanisms

Maintenance contracts and performance security
Depending on the cost and nature of the goods to be purchased, government may enter into the maintenance contract(s) of a suitable period either with the supplier of the goods or with any other competent firm.[6]  The bidders, who are not registered with the Central Purchase Organization, National Small Industries Corporation (NSIC) or the concerned Ministry or Department, may be asked to furnish bid security along with their bids to safeguard against their withdrawing or altering bid during the bid validity period in the case of advertised or limited tender enquiry.[7] Similarly, to ensure due performance of the contract, Performance Security is to be obtained from the successful bidder awarded the contract.[8] Performance Security should be for an amount of five to ten per cent. of the value of the contract. It may be furnished in the form of an Account payee Demand Draft, Fixed Deposit Receipt from a Commercial bank, Bank Guarantee from a Commercial bank in an acceptable form safeguarding the purchasers’ interest in all respects.  Performance Security should remain valid for a period of sixty days beyond the date of completion of all contractual obligations of the supplier including warranty obligations.
 
Advance payments
Ordinarily, payments for services rendered or supplies made should be released only after the services have been rendered or supplies made. However, it may become necessary to make advance payments in the following types of cases:-
(i) Advance payment demanded by firms holding maintenance contracts for servicing of air-conditioners, computers, other costly equipment, etc.
(ii) Advance payment demanded by firms against fabrication contracts, turn-key contracts, etc.
 
Advance payments are permitted on certain types of contracts up till certain limits. For example, these payments should not exceed the following caps as per GFR:
  • Thirty per cent of the contract value to private firms;
  • Forty per cent of the contract value to a State or Central Government agency or a Public Sector Undertaking; or
  • in case of maintenance contract, the amount should not exceed the amount payable for six months under the contract.
Central Government Ministries or Departments may impose lower ceilings internally after consultation with their financial advisers.
If the government department makes any advance payment as above, it should ensure there are adequate safeguards in the form of bank guarantee, etc. should be obtained from the suppliers.
 
The department may trade the existing old item while purchasing the new one and for this purpose, a suitable clause is to be incorporated in the bidding document so that the prospective and interested bidders formulate their bids accordingly.[9]
 
Maintenance contracts and performance security
Depending on the cost and nature of the goods to be purchased, government may enter into maintenance contract(s) of suitable period either with the supplier of the goods or with any other competent firm.[10]  The bidders, who are not registered with the Central Purchase Organization, National Small Industries Corporation (NSIC) or the concerned Ministry or Department, may be asked to furnish bid security along with their bids to safeguard against their withdrawing or altering bid during the bid validity period in the case of advertised or limited tender enquiry.[11] Similarly, to ensure due performance of the contract, Performance Security is to be obtained from the successful bidder awarded the contract.[12] Performance Security should be for an amount of five to ten per cent. of the value of the contract. It may be furnished in the form of an Account payee Demand Draft, Fixed Deposit Receipt from a Commercial bank, Bank Guarantee from a Commercial bank in an acceptable form safeguarding the purchasers’ interest in all respects.  Performance Security should remain valid for a period of sixty days beyond the date of completion of all contractual obligations of the supplier including warranty obligations.
 
Advance payments
Ordinarily, payments for services rendered or supplies made should be released only after the services have been rendered or supplies made. However, it may become necessary to make advance payments in the following types of cases:-
(i) Advance payment demanded by firms holding maintenance contracts for servicing of air-conditioners, computers, other costly equipment, etc.
(ii) Advance payment demanded by firms against fabrication contracts, turn-key contracts, etc.
 
Advance payments are permitted on certain types of contracts up till certain limits. For example, these payments should not exceed the following caps as per GFR:
(i) Thirty per cent of the contract value to private firms;
(ii) Forty per cent of the contract value to a State or Central Government agency or a Public Sector Undertaking; or
(iii) in case of maintenance contract, the amount should not exceed the amount payable for six months under the contract.
Central Government Ministries or Departments may impose lower ceilings internally after consultation with their financial advisers.
If the government department makes any advance payment as above, it should ensure there are adequate safeguards in the form of bank guarantee, etc. should be obtained from the suppliers.
 
Special procedure for certain goods and from MSEs
The Central Government, through administrative instructions, has reserved all items of handspun and handwoven textiles (khadi goods) for exclusive purchase from Khadi Village Industries Commission (KVIC).
It has also reserved all items of handloom textiles required by Central Government departments for exclusive purchase from KVIC and/or the notified handloom units of ACASH (Association of Corporations and Apex Societies of Handlooms). The Central Government has reserved some items[13] for purchase from registered Small Scale Industrial Units.
 
These Small Scale Industrial Units registered under Single Point Registration Scheme of NSIC are eligible to get the benefits under “Public Procurement Policy for Micro & Small Enterprises (MSEs) Order 2012” as notified by the Government of India (discussed earlier). For registration, Micro & Small Enterprises need to apply on the prescribed application form in Duplicate and to be submitted to the concerned Zonal/Branch Office of NSIC located nearest to the unit. The relevant details regarding the registration are given on http://www.nsic.co.in/gp.asp
  • Purchase of goods upto the value of INR 15,000/- may be made without inviting quotations or bids on the basis of a certificate to be recorded by the competent authority.
  • Purchase of goods costing between INR 15,000/ to INR 1,00,000/- may be made on the recommendations of a duly constituted Local Purchase Committee consisting of three members of an appropriate level as decided by the head of the department. The committee will survey the market to ascertain the reasonableness of rate, quality and specifications and identify the appropriate supplier and will jointly record a certificate as under. However, a demand for goods should not be divided into small quantities to make piecemeal purchases to avoid the necessity of obtaining the sanction of higher authority required with reference to the estimated value of the total demand.

[1] Rule 1 (v) “Competent Authority” means, in respect of the power to be exercised under General Financial Rules, the President or such other authority to which the power is delegated by or under these General Financial Rules, Delegation of Financial Power Rules, 1978 or any other general or special orders issued by the Government of India
[2]With a view to establishing reliable sources for procurement of goods commonly required for Government use, the Central Purchase Organisation (e.g. DGS&D) will prepare and maintain item-wise lists of eligible and capable suppliers. Such approved suppliers will be known as “Registered Suppliers”. They are also ordinarily exempted from furnishing bid security along with their bids.
[3] Rule 151
[4] Rule 151
[5] Rule 150
[6]Rule 156
[7] Rule 157
[8] Rule 158
[9] Rule 162
[10]Rule 156
[11] Rule 157
[12] Rule 158
[13] http://eprocure.gov.in/cppp/sites/default/files/gos/imsme_FinalPressorder.pdf
 
Procurement of services and engagement of consultants by the Central Government
 
How do the central government ministries or departments procure services?
 
The Ministries or Departments can hire an external professional, consultancy firm or a consultant for a specific job. Procedurally, it is important for the ministry / department to define the scope of the job and prescribe a time frame for its completion.
 
A Department or Ministry may engage consultants only in situations which require high-quality services for which the concerned Ministry/ Department does not have requisite expertise. Approval of the competent authority should be obtained before engaging consultant. Such Ministry or Department which is proposing to engage consultant(s) should make an estimate of the reasonable expenditure for the service sought by taking into account prevalent market conditions and consulting other Ministries/Departments engaged in similar activities.
 
Step 1: How to identify the consultants or service providers?
 
Though there are many consultants or service providers in the market, it might not be easy to find out the best players in the market who have competency in executing a particular service, especially if it is a niche or highly specialised service. The General Financial Rules have laid down the following guiding principles for identifying the consultants:
 
For services upto INR 25 lakhs: A long list of potential consultants may be prepared on the basis of formal or informal enquiries from other Ministries/Departments or Organisations involved in similar activities, Chambers of Commerce & Industry, association of consultancy firms, etc. 
For services above INR 25 lakhs: In addition to  consultation with other Ministries, industry bodies, etc., an enquiry for seeking ‘Expression of Interest’ from consultants should be published in at least one national daily and the Ministry’s website. The website address should also be given in the advertisements. On the basis of responses received from the interested parties, at least 3 consultants meeting the requirements should be short listed for further consideration.
 

 

Can a specific consultant be selected, without detailed invitation of bids?
Under some special circumstances, selection of a particular consultant may be done, where adequate justification is available for such single-source selection. Full justification for single source selection should be recorded in the file and approval of the competent authority obtained before resorting to such single-source selection.

 
Step 2: Shortlisting of consultants: On the basis of the responses received from the above-interested parties, the ministry will short list minimum 3 consultants.
 
Step 3: Preparation of Terms of Reference (TOR)
The Ministry/Department should prepare terms of reference which should include:
  • statement of objectives,
  • outline of the tasks to be carried out,
  • schedule for completion of tasks, the
  • support or inputs to be provided by the Ministry or Department to facilitate the consultancy and
  • the final outputs that will be required of the Consultant.
Step 4: Issuance of Request for Proposal: Similarly Request for Proposal (RFP) should be issued to the shortlisted consultants to seek their technical and financial proposals. RFP is the document to be used by the Ministry/ Department for obtaining offers from the consultants for the required work/service. It should contain:
  1. A letter of Invitation
  2. Information to Consultants regarding the procedure for submission of proposal.
  3. Terms of Reference (TOR).
  4. Eligibility and pre-qualification criteria in case the same has not been ascertained through       Enquiry for Expression of Interest.
  5. List of key position whose CV and experience would be evaluated.
  6. Bid evaluation criteria and selection procedure.
  7. Standard formats for technical and financial proposal.
  8. Proposed contract terms.
  9. Procedure proposed to be followed for midterm review of the progress of the work and review of the final draft report.
 
Step 5: Acceptance of proposal forms
Proposals should ordinarily be asked for from consultants in ‘two bid’ system with technical and financial bids sealed separately. The bidder should put these two sealed envelopes in a bigger envelop duly sealed and submit the same to the Ministry or Department by the specified date and time at the specified place.
 
Step 6: Evaluation of bids
On receipt, the technical proposals should be opened first by the Ministry or Department at the specified date, time and place. Late bids should not be considered. Technical bids should be analysed and evaluated by a Consultancy Evaluation Committee (CEC) constituted by the Ministry or Department. The CEC shall record in detail the reasons for acceptance or rejection of the technical proposals analysed and evaluated by it. The Ministry or Department shall open the financial bids of only those bidders who have been declared technically qualified by the Consultancy Evaluation Committee.
 
Step 7: Monitoring the contract
Once the contract has been awarded, the Ministry should monitor the performance of the consultant from time to time, ideally by forming a special task force for this purpose.
 
 
Outsourcing of services
A Ministry or Department may outsource certain services in the interest of economy and efficiency and it may prescribe detailed instructions and procedures for this purpose without, however, contravening the following basic guidelines.
 
Step 1: Identification of the contractors and preparation of tender enquiry: Identification of likely contractors can be done by the Ministry or Department by preparation of a list of likely and potential contractors on the basis of formal or informal enquiries from other Ministries or Departments and Organizations involved in similar activities, scrutiny of ‘Yellow pages’, and trade journals, if available, website etc.  The tender enquiry prepared by the Ministry or Department should contain:-
  1. The details of the work or service to be performed by the contractor;
  2. The facilities and the inputs which will be provided to the contractor by the Ministry or Department;
  3. Eligibility and qualification criteria to be met by the contractor for performing the required work/service;
  4. The statutory and contractual obligations to be complied with by the contractor.
 
Step 2: Invitation of bids:
For service up to Rupees ten lakhs or less: the Ministry or Department should scrutinize the preliminary list of likely contractors, decide the prima facie eligible and capable contractors and issue a limited tender enquiry (LTE) for inviting offers from there. Ideally, the LTE should be issued to more than six contractors.
 
For estimated value of the work or service above Rupees ten lakhs: The Ministry or Department should issue advertised tender enquiry asking for the offers by a specified date and time etc. in at least one popular largely circulated national newspaper and website of the Ministry or Department.
 
Step 3: Evaluation of bids and selection under exceptional situations: The Ministry or Department should evaluate, segregate, rank the responsive bids and select the successful bidder for placement of the contract. In an exceptional situation, which needs to outsource a job to a specifically chosen contractor, the Competent Authority in the Ministry or Department may do so in consultation with the Financial Adviser. In such cases the detailed justification, the circumstances leading to the outsourcing by choice and the special interest or purpose it shall serve shall form an integral part of the proposal.
 
Step 4: Monitoring the contract: The Ministry or Department should be involved throughout in the conduct of the contract or consultancy and continuously monitor the performance of the contractor/consultant.
 




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