Coupon Accepted Successfully!


Introduction to government procurement 

The government is the largest spender in the economy. It spends huge sums of money for development, infrastructure related work, partnerships with private entities, and in creating an interface over which the public can interact with it.


For example, the Ministry of Corporate Affairs (MCA) awarded a contract of INR 350 crores to maintain and upgrade their online filing interface for companies. See the news report here.


Government spending on goods and services is typically referred to as ‘government procurement’. Governments have a large internal procurement outlay. Private sector entities have significant opportunity to benefit by supplying various products and services to the government - from hired taxi services, printers, photocopiers, hotels and hospitality services, building of roads, schools, hospitals, amphitheatres, sports complexes, offering professional services, technical support, etc.


The Government, however, follows certain procedures for procurement from businesses. Many businesses lose out on the opportunity to supply to the government due to lack of familiarity with such procedures.


Let’s understand the difference in the process when a contract is entered into with the government, as compared to a situation when private entities enter into a contract with each other.


When a private entity intends to procure goods and services, it is free to choose the supplier. It is also free to choose the procedure by which it chooses the supplier. It is not required to follow any specific procedure – it can choose any private supplier depending on its free will. Many private entities do not invite any tenders or bids from potential suppliers, and directly enter into a contract with potential suppliers, especially when the procurement is on a small scale.

While inviting bids may reduce the prices that a private procurer pays for projects (e.g. platforms such as
Elance and Freelancer enable both small and large businesses to invite bids for projects from interested bidders), a private entity is not required to follow specific processes and rules for evaluation of bids and awarding the contract. Contracts with friends, ventures run by family members, related parties or other entities with whom they have prior familiarity or a reference are fairly common.

However, from larger procurement transactions, big companies invite bids or tenders (usually to benefit from lower prices and to be able to choose the best supplier). They may conduct conferences where suppliers of goods and services ‘pitch’ to the entity.


The government cannot follow such a process – it may give rise to allegations of bias, favouritism and not giving others an opportunity to supply to the government, which is violative of the Constitution. Barring procurements of extremely small amounts, it must invite tenders and give an equal opportunity to all private parties to have a chance at supplying to the government. If this process is not followed (or if there are irregularities in the process), the procurement process may be nullified by a court - this has happened in the 2G spectrum allocation cases, where the Supreme Court cancelled 122 licenses allocated by the government.


Assume that a leading private hotel chain in India is looking for a local consultant to construct a hotel in a town. The company will enter into an engineering, procurement and construction (EPC) contract with the consultant. It decides to invite proposals from interested consultants. The consultants will individually pitch before the management of the company. There are ten consultants who have been invited to the pitching session with their bids. The management is very impressed when it hears the proposal of the fifth consultant and wants to award the contract to him and call off the remaining program. The remaining five bidders have been politely asked to return, without any hearing or evaluation of their pitches and the proposal.
Will such a process of awarding the contract be held valid if it is challenge in a court?

The government has wide discretion to choose the supplier, but it must necessarily observe a particular
kind of procedure to procure goods and services.


Private entities are free to enter into a contract with an entity or individual of their choice – they are not required to observe any specific procedures before entering into the contract. Hence, the above procedure is perfectly valid, if the contract is entered between private entities. Unless the contract is entered into as a result of fraud or misrepresentation by a party, or one of the parties has not freely consented to the contract (and is appropriately stamped), the contract will be valid.


Government entities are required to observe certain procedures to ensure that every interested party has been provided a fair opportunity to supply to it, and they cannot be biased towards a particular bidder. Cancellation of the bid process mid-way without hearing the proposals of some of the interested parties is violates the above requirement. Hence, in the above scenario, if a government entity had invited bids and it was impressed with the fifth bidder, the contract could have been awarded to it (so long as he met the required technical and financial criteria) after granting an audience to and conducting evaluation of the proposals from all the interested parties.


Are government procurement procedures relevant for small businesses?


Opportunities to supply to government entities are not restricted to larger businesses. Small businesses are equally eligible to participate in the procurement process. Over time, the process for procurement has been simplified to a great extent. Sometimes, the government even provides reservations for contracts for small businesses (as the discussion below will explain).


Supplying to the government is also a tremendous boost for the reputation of a business (not many players in a particular industry can boast of having the government on their client list). It can also be a rich source of cash flows, as the government usually procures on a larger scale compared to private entities, and a useful cushion against an economic downturn, when demand from the private sector falls.


Entrepreneurs often overlook the possibility of supplying to the government, on the impression that there will be numerous ‘unknown’ obstacles, corruption and red-tape, a notion compounded by recent exposures of instances of corruption and scandals by the media.




Learning objectives


The purpose of this module is to familiarize entrepreneurs and advisors about the processes deployed by the government for procuring goods and services. After going through this module, a businessman should be able to learn the following:
  1. Where to find bid documents
  2. Rules applicable to different
  3. Incentives available to small industries
  4. Understand the essential terms in bid documents
  5. Understand mechanisms for evaluation of bids
  6. Checks that must be followed by a business so that an award of a contract to it cannot be subsequently nullified by a court
  7. Know what steps to take in case its bid is not evaluated, or if it suspects bias


Part 1

   Legal restrictions on the Government’s freedom of choice


The difference between Government procurement and sourcing of goods and services by a private entity, e.g. Reliance Industries Limited, from other suppliers was explained above. The government (unlike private individuals and corporations) does not have the same degree of freedom to enter into contracts.

As per the Indian Constitution, every person should be afforded equal treatment and equal protection under the law by the state – this principle has been extended to economic matters as well. The application of this doctrine to economic matters implies that when the government is procuring (or providing) goods or services, it must follow a process which meets certain requirements (called ‘due process’ under law), and any distribution of property or largesse by the government (e.g. a privilege, or allocation of coal blocks, or allocation of mobile spectrum, etc.) should be done in manner that it affords equal opportunity to all.


Compliance with this element of ‘due process’ requires the government to follow a certain kind of procedure for procurement of goods and services from the private sector, involving tenders, bidding, proposals, etc. (the procedure is referred to as ‘public procurement’). In fact, the requirement of due process is not restricted to the Central or state governments exclusively but also applies to various other entities which are significantly controlled by the government – e.g. public sector undertakings, statutory corporations, etc. It also includes municipalities and local bodies. These entities shall collectively be referred to as Government Entities in this discussion.


Thus, the key principles of procurement by Government entities:


1. Government Entities cannot enter into a contract with any person without following particular process which qualifies as ‘due process’ – this requirement of due process implies that the government must invite offers in a certain manner, it must evaluate bids in a particular manner, and the award of the contract must meet certain requirements. For example, the Government cannot invite bidders to send their bids for building a highway, and select the fifth bidder without even going through the proposal of the tenth bidder.


2. Government Entities cannot discriminate between products or contractors.


How does the government invite bids?

Say, the government wishes to procure tablet computers for the Department of Health. It can do this in two ways:


1.It can invite Apple Inc. to supply these tablet computers - that would deprive other suppliers or manufacturers of the tablet an opportunity to propose better terms or value propositions to the government. Courts in this instance would hold that there has been a breach of equal protection under the Indian Constitution (not all suppliers of the product have been given an opportunity to offer their terms to the government), and could even set the procurement aside.


2. On the other hand, the government could have merely included the word ‘tablet’, instead of mentioning a particular manufacturer or supplier of such products. Reference to the general category of devices would have provided other tablet manufacturers to participate in the process as well. The government may eventually select Apple as the supplier of tablets required by them - would a laptop or desktop manufacturer have a valid ground to complain in the process? No, because a tablet is an entirely different kind of a device, as compared to a laptop or a desktop, and typically serves a different purpose. A court would not go deeper into the question of whether the government needed tablets or whether desktops or laptops would have sufficed for the purpose, as the government has the discretion to decide that.

What are the ‘rules of the game’ in a bid process and how do they affect you?


Given the requirement to follow due process to procure goods, Governments Entities have put together mechanisms to ensure that a fair and transparent procedure is followed for the selection of contractors. What are the rules that the government is required to follow in order to satisfy the test of due process?


In many countries, there are laws that govern public procurement – however, India does not have a uniform statute governing procurement currently. A draft law called the Public Procurement Bill, 2011 which aims to harmonize procurement procedures by Central Government and public sector undertakings (PSUs) of the Central Government has not been approved in Parliament and is not in force. The bill provides flexibility and autonomy to various government entities to establish their own procedures for procurement (as is the case now), subject to certain safeguards and checks.


As of date, different governments and PSUs follow independent processes for procurement. For the purpose of this discussion, we shall examine briefly the procedures currently observed by some government departments. There is an element of uncertainty in the procedures currently and legal principles are gradually evolving.

For example, the instruments followed by some key government departments are listed below:


1) Central Government, its ministries and departments (except Ministry of Defense) – The Central Government and its ministries usually observe an internal set of guidelines called the General Financial Rules, 2005 (GFR) to procure goods and services. Note that the GFR are merely a set of guidelines that the departments ‘may’ internally observe. However, these are not binding on the government departments and they are free to deviate from them in appropriate cases, without being subject to challenge in a court of law. A challenge may only be possible if the entity which has suffered is able to invoke one of other grounds for challenge mentioned below, other than mere non-compliance with the GFR.


2) Ministry of Defense Every year, the Ministry of Defense (MOD) releases a Defense Procurement Manual (DPM) and the Defense Procurement Procedure (DPP), which lay down the policy that must be followed by the MOD to procure different kinds of equipment for the armed forces. There are updated on an annual basis.


3) Electricity Electricity tariffs are regulated by the electricity commissions under the Electricity Act, 2003. The electricity commission is empowered to adopt a tariff at which electricity is purchased by distribution companies from the power generation companies through a process of ‘competitive bidding’, as per the guidelines issued by the Ministry of Power for Determination of Tariff by Bidding Process for Procurement of Power by Distribution Licensees, available on:



It is not feasible to aggregate and explain the procedure followed by every government entity as there are thousands of them – however, there may be common elements in their procurement procedures, which we shall discuss in this chapter.


What should a private entity which intends to supply goods to the government be aware of?


In order to be able to bid for government contracts, a businessman should know the following:


1) Where to find the invitations for tenders

2) Technical specifications of the product or service that is invited through a tender

3) Common terms and jargon in tenders

4) How to prepare bid documents

5) Processes for bid evaluation

6) Any other legal requirements 


NoteTechnical specifications of the product or service that is invited through a tender is specific to the field in which the business is operating and need not be explained here. These will already be known to businessmen who have businesses operating in the given field. For example, if the government is inviting tenders for wireless radios for the army (which will be used for communication over a particular frequency bands), it will include technical specifications to those tenders. A businessman who manufactures/ assembles this equipment will already be familiar with the necessary specifications.


Where should you find out available tenders?

Many government undertakings have started publishing invitations for tenders on the internet. Some departments even accept bids from interested entities electronically (these must be signed by a digital signature of the bidder). However, there are still government entities which do not publish tender invitations online, but permit tenders to be physically procured by approaching the government office from interested parties. Notice of these tenders may be exclusively published in local or national newspapers.

We are listing some of the online sources where tenders can be procured below:

Central Government websiteshttp://tenders.gov.in is a centralized portal, containing tenders from the Central Government, certain state governments (all Indian states do not currently upload available tenders on this portal) and public sector undertakings.


2. State government websites –State governments have also started maintaining separate websites for tenders. For, example:

Tamil Nadu: For accessing tenders in Tamil Nadu, one may visit: http://www.tenders.tn.gov.in/ 

This site contains tenders from various departments of the Tamil Nadu Government, local bodies such as the Chennai or Salem Municipal Corporation, state PSUs such as Electronics Corporation of Tamil Nadu, Tamil Nadu Infrastructure Development Corporation and local boards such as Tamil Nadu Electricity Board.

Gujarat: Tenders from departments of the Government of Gujarat are available at: http://gujaratinformation.net/showpage.aspx?contentid=45


Interested businessmen may conduct searches on the internet for tenders from different governments and public sector undertakings. Paid websites such as http://tenders.indiamart.com can also be used, as they consolidate tenders available from various sources.



Part 2

Common types of contracts with the government


The government may invite bids for different kinds of procurement transactions. After the government decides to award the bid to a particular entity (or a consortium of entities), it enters into a contract which sets out the obligations of each party. The type of transaction will influence the nature of the bid and the ultimate contract. Depending on the product or service procured and the type of the commercial relationship contemplated with the private entity, the contracts entered by the government could vary. Some examples are given below:


1.Contract for procurement of productsThe government may decide to procure products, for example, stationery or furniture for one of its departments. 

2.Service Contract, such as a contract to build or manage a website, such as the contract to administer the website of a government department. These contracts can be quite large in value – for example, the Ministry of Corporate Affairs (MCA) website which enables e-filing of relevant statutory documents by companies across India was earlier implemented by Tata Consultancy Services, but has now migrated to Infosys for a 9 year period from 2013 to 2021, and has a project outlay of over INR 350 crores.



Let’s take the example of a simple contract for house-keeping services by a passport office of the government, which incidentally, is actually listed. See: http://tenders.gov.in/innerpage.asp?choice=tc5&tid=chd498119&work=1. 

Are such contracts important for businesses? Can they offer rewarding opportunities for startups? Yes.


Bharat Vikas Group, a venture started by Hanmant Gaikwad, started rose to prominence in the facility management service space after it bagged a contract to provide Facility Management Services to Rashtrapati Bhavan. Today, BVG is an INR 300 crore firm in the facility management space.
You can see the details here: http://connectthedots.in/who-is-in-the-book/jugaad/


3.Works contract – A works contract usually involves performing certain services (e.g. building, construction) as well as bringing the necessary materials to perform those services (such as cement, etc.). Usually these are in the nature of engineering, procurement and construction contracts (EPC Contracts). For example, consider a contract to construct a public school on government land. In this case, a private entity can be responsible for bringing in the necessary materials for the construction of the school, as well as construction of the school (using those materials). Contracts for construction of buildings and other infrastructure fall within this category.


4.Empanelment/ Registration of service providers Empanelment is usually a process used for procurement of services from consultants and professionals, e.g. a design consultant, lawyers, architects, accountants, etc. The government can include reputed consultants on its panel for a particular duration of time (e.g. 2 years), so that the government does not have to invite fresh bids each time a fresh issue is faced by a government department.  can be referred smoothly to the concerned consultant, without having to Empanelment may also be used for certain standardized services


For example, the government may release a notice for empanelment of a reputed law firm for representing PSUs in international commercial arbitrations. For example, see NCERT’s invitation for empanelment of printers on the following link (also uploaded on the LMS): http://www.ncert.nic.in/announcements/oth_announcements/pdf_files/Application%20_Printers.pdf


5.Concession Agreements / agreements for management of infrastructural facilities – Contracts to build a road, a highway or other infrastructural facility are usually in the form of concession agreements. For example, the responsibility of construction and maintenance of national highways is with the National Highways Authority of India (NHAI). NHAI may invite bid documents from private entities to build specific stretches of a national highway (e.g. a 5 kilometre stretch passing through a particular district. Once it awards tender to a particular entity, it will enter into a Concession Agreement with that entity.

Similarly, the Airports Authority of India (AAI) can enter into contracts (after inviting tenders) from private entities for operation and management of an airport. AAI entered into an Operation, Management and Development Agreement for maintenance of Delhi Airport with a bidding consortium organized as Delhi International Airport Private Limited (DIAL), which is a joint venture between the GMR group entities, Fraport AG Frankfurt Airport Services Worldwide, GVL Investments, Malaysia Airports and AAI itself.

The agreement is available on the following link (uploaded on the LMS): http://www.aai.aero/righttoinformation/OMDA_DIAL.pdf



Part 3

 Key terms in a tender document


Let us study some of the key terms in an invitation to submit tenders below:


1)Duration of the proposed contract – The businessman should make a note of the duration of the proposed relationship / contract with the concerned Government Entity. Note that the period of the relationship begins after a binding contract is entered into, it does not begin with the submission of the tender by the products/ service provider.


2) Scope of obligations of the bidderThe nature and description of the work that is to be performed by a bidder (in case he is awarded the contract) is very important. Usually, the tender document specifies technical requirements that the bidder’s work must conform to, which can be very detailed and complex sometimes.


3) Understanding eligibility conditions – A tender may specify certain eligibility conditions, which may differ depending on the nature of the work sought. A business must meet these conditions for it to be eligible for the work. Further, a businessman must also pay attention to the terms of the work and payment mechanisms that are mentioned in the tender notice. Some of the eligibility conditions and other terms which are relevant in tender notices are discussed below:


a.Minimum period of existence and prior experience in a particular industryGovernment Entities want to ensure that the private entities they enter into contracts with are reliable and reputed, and not fly-by-night operators. Therefore, they may stipulate requirements that they must be in existence for a certain period (e.g. say, 3 years or so) or that it has previously performed a similar function for another Government Entity. For example, the CMDA Tender Notice (uploaded on the LMS) requires the bidder to have at least one year’s experience serving a government undertaking. 


b.Business structure – For some kinds of work, the government may prefer the bidders to be organized as companies and not partnerships or proprietorships. An invitation to submit tenders may also have stipulations regarding whether joint ventures can submit bids.


c.Conditions pertaining to the size of the business A tender notice may specify that a business should have a certain minimum turnover. It may require documents to establish that. For example, the CMDA Tender Notice stipulates that the bidder should have had a turnover exceeding INR 16 lakhs in any one of the previous three years. It also requires the bidder to submit income tax returns as proof of the same.


Note – Certain entities do not file tax returns systematically, or resort to a plethora of techniques for reducing their tax liability (such as conducting transactions in cash without disclosing such income in their books and income tax returns). Such entities may stand to suffer a disadvantage (with respect to bidding for government contracts) if their income statements do not disclose income which meets eligibility criteria.


d.Earnest moneyGovernment Entities typically require earnest money (which is similar to a security deposit when you rent a property) so to dis-incentivize private entities from terminating the contract before expiry of its term. For example, the Passport Office Tender requires an earnest money deposit of INR 10,000 (high value contracts could stipulate a much higher sum as deposit).


e.Compliance with laws and industry best practicesAn invitation to tender may require compliance with applicable laws. For example, the Passport Office Tender prohibits the private bidder from employing any child labour whatsoever, even if the child labour is employed at some other premises (not at the passport office). He may be disqualified if he employs child labour. In addition, compliance with other labour and industrial laws (including minimum wages legislation) and human rights standards is also required under the Passport Office Tender. Sometimes, tender notices may stipulate compliance with specific industry standards and best practices.


f.Payment mechanisms and related modalities A private entity should note the time and manner of payment, as it is critical from the perspective of managing cash flows. For example, imagine a service provider who works only on advance payments to bid for a contract where the Government Entity promises payment only after 2 months of completing the work. This may require the bidder to plan and make undue adjustments to his cash-flow stream. Such arrangements may not be comfortable for all bidders – those who cannot accommodate this model may be better off bidding only for such contracts which are compatible with their model.


4)Method and time of evaluation of the tender - The method by which tenders are invited, that is, whether the bid is a single-stage or two-stage process, whether it is a sealed-bid, etc. (these terms are explained in detail later in this module).


5)Method of submission of bids The manner in which the bid may be submitted is important. Many departments require manual submission, although some government entities and departments have started allowing electronic submission, in which case the bid document along with attachments can be uploaded online with the digital signature of the bidder. Bidders should ensure that they qualify with any pre-specified formats for submission of the bids. For example, the Passport Office Tender has a specific proforma for submitting the quotation.


What if the invitation to tender is silent or fails to cover certain aspects which are relevant from the perspective of a prospective bidder? In such cases, the bidder should issue a request for clarifications. Government Entities frequently issue ‘corrigenda’ to clarify doubts or provide further instructions on any relevant issues that they may have omitted to mention in the tender notices. In fact, requesting appropriate clarifications, where necessary is also considered a strategic way for private entities to build visibility with the concerned government entity. Private entities who frequently request relevant clarifications are often viewed as ‘serious’ participants in the process.


Reference Documents:

  1. Notice to submit tenders from the Chennai Metropolitan Development Authority issued on 11th March 2013 (uploaded on the LMS) (CMDA Tender Notice)
  2. Tender document issued by the Ministry of External Affairs for house keeping services for the Regional Passport Office, Chandigarh (Passport Office Tender)
  3. NCERT Notice for empanelment of printers.


Part 4

 A. Understanding bid evaluation processes


The central government and states observe certain processes for tendering products, services and for high value transactions such as infrastructure projects. Due to lack of an umbrella legislation pertaining to government procurement, the specific procurement process varies depending on the sector and the government authority, but there are some broad general similarities that inform bid processes as a matter of practice.


1. One envelope and two envelope systems:


The bid submitted by an applicant may be as per a one envelope or a two envelope system - depending the requirements of the bid documents. A bid usually has two components – the technical criteria and the financial criteria. In a one-envelope system both are evaluated together and the project is awarded to the lowest cost bidder (called the L1 bidder). However, in case of a two-envelope system, two separate proposals are submitted – one is a technical proposal and the other is a financial proposal. Only those entities whose bids meet the necessary technical criteria are evaluated on their financial bid. Once again, the lowest bidder (L1 bidder) is selected.


2. Single stage and two-stage bid processes:


A bid process may comprise of a single stage or two-stages. In a single stage bid process, the bid is submitted in the first stage itself. Most bid processes are single-stage bids, i.e., a bidder has to submit a bid only once (sometimes single-stage bid processes may require submission of two proposals, i.e. a technical and financial bid, but they must be submitted together). This is usually done in simple procurement processes which involve clear and straightforward description of the goods and services, and where a preliminary evaluation of which bidders are eligible to submit bids is not necessary.


In complex procurement processes that involve larger projects, a combination of goods and services or high levels of expertise, it is sometimes essential to set eligibility criteria and predetermine which bidders first which bidders are eligible to submit detailed bids. In such cases, the first stage is called the ‘pre-qualification stage’, which involves filtering out applicants on the basis of broad technical and financial indicators – these may be general indicators and not necessarily specific to the particular process. The procurer issues a Request for Qualification (RFQ) at this stage.


Only those applicants who qualify during the first stage are permitted to participate in the second stage. In the second stage, called the ‘qualification or proposal stage’, a detailed proposal is required by the bidding authority that outlines the financial, technical and project specific qualifications of the applicant with respect to the project under consideration. The selection criteria may also involve a number of indicators and score points that are required to be satisfied by the applicant for a successful award.

The qualification process often involves a higher degree of engagement at a formal level between contractors and the bidding authority in relation to the terms of the contract proposed to be entered into, bid procedures and timelines etc. The reduced number of bidders in the qualification stage also permits the government to engage pro-actively with these matters. The procurer issues a Request for Proposal (RFP) at this stage.



 For example, in the power sector, a two stage bidding process is followed by procurers (i.e. distribution licensees) for procurement of more than 7 years (see the guidelines for determination of tariffs here - http://www.powermin.nic.in/whats_new/competitive_guidelines.htm)




Example 1


Assume the government of Gujarat wants to digitize electricity distribution in the state. The value of the project is, say Rs. 700 crores. The Government may simply list the details of the project and invite all interested bidders to submit bids – this will be a single stage process.
This process may be appropriate for selecting a web development company to create a website, but not appropriate for a project of this size - it may lead to wastage of time and resources of the government (and the private entity as well) if it evaluates bids from private entities whom it later finds out do not have adequate level of experience or expertise in similar projects. Therefore, it may filter the applicants by inserting another stage into the process – at this stage, it will only select entities which have a certain level of experience in the industry, who have handled similar projects in the past, and which meet a certain level of capital and turnover. Only entities which clear this stage will be entitled to bid for the project.


Example 2


In the case of a project for development of an airport, the Airports Authority of India may require pre-qualification criteria to include - experience in building a certain number of airports in the past, access to certain technologies, financial ability etc. Applicants would be pre-qualified on this basis and a large number non-serious or inexperienced bidders would be excluded from the qualification process. This is important since the qualification stage would entail high costs for the authority and the bidder, given the complex submissions that need to be made by the applicant and reviewed by the authority. Depending on the bidding authority’s approach to the bid process, these submissions would include detailed descriptions of past projects undertaken, technologies that may be used, personnel to be deployed, contracts entered into between the contractors bidding as a consortium, financial information, details of past defaults in similar contracts, approach and methodology for undertaking the projects, cost assessments, bid price etc.

Periodic pre-qualification

In certain cases, the qualification stage may be conducted at periodic intervals, such as annually or biannually, so as to decrease time and costs for the bidding authority and applicants. The pre-qualified applicants are ‘empanelled’ with the authority, and whenver the authority has a requirement, it would send bid documents for the second stage to the applicants. This may occur multiple times during the empanelment period.


B. What are the risks faced by a private bidder who participates in the procurement process?

If a government entity which is procuring goods or services does not observe the correct rules for the procurement process (see the discussion on due process below), the court can cancel the award to the winning bidder (if it is challenged).


This leads very often to a situation where governments undertake procedurally fault bid process and award contracts to third parties. The award of a contract is often challenged by third parties in courts and courts have in the past struck down the entire bid process. In such cases, the entity which was awarded the contract suffers considerable losses, because the contractor usually incurs significant time and monetary costs towards performance of the contract. Though, a contractor who has thereby lost time and money is free to approach the courts for remedies, there is uncertainty on whether at all the contractor will recover the same.


While it is the responsibility of the government to ensure that the bid procedure is followed and contracts are awarded transparently, it is in a bidder’s strategic interest to ensure that there are no lacunae in the process as well the award of the bid, as subsequent cancellation can jeopardize his interest, even if he is the winning bidder.


For example, in February 2012, the Supreme Court (in the case of Centre for Public Interest Litigation v. Union of India) cancelled 122 telecom licenses in the 2G spectrum that were granted to telecom companies on the ground that they were granted on a first come first serve basis instead of an auction process, which caused an estimated loss of INR 1,76,000 crores to the public exchequer as per CAG reports (although it was later suggested that a more reasonable estimate should be around INR 2600 crore – the actual value of the loss will be known once the spectrum is re-auctioned).


The Supreme Court decision is available here: http://www.indiankanoon.org/doc/116116642/


C. How can bidders minimize their risks?


1. By ensuring that the CVC guidelines are followed, and that there is no fraud or corruption in the bid process.


What are CVC Guidelines?


Procurement processes must be fair and transparent – while different government agencies and departments are free to create their own rules, the Central Vigilance Commission has prescribed certain checks to ensure that procurement is carried out in a fair, non-corrupt and transparent manner. The CVC has issued several guidelines to regulate the manner in which the procurement process is conducted. For example, CVC has banned post-tender negotiations (except with the winning bidder) on the ground that they are a source of corruption. 

CVC guidelines on public procurement and tenders are accessible on the following links-


2. By proactively engaging with the bid process. Interested bidders can seek clarifications at appropriate stages for this purpose, and suggest changes to the bid documentation.


3. By assisting and advising the government where required on best practices in bidding and award of contracts

What actions can a private entity take in case it has not been awarded a contract?

Awarding a contract to a bidder is not a purely mathematical or analytical process only, but it is also a commercial decision requiring exercise of judgment or discretion at various levels. It is very difficult for a business to question the decision itself. A bidder cannot argue that his bid should have been selected on the ground that it was as ‘good’ as the winning bidder. Such arguments will not stand ground in a court because courts will respect the discretion exercised by a government authority. However, a bidder can question irregularities in the process. For example, he can consider arguing that the choice exercised by the government entity is absolutely arbitrary, or if the private supplier’s bid was not considered at all. These claims, of course, will have to be established by the bidder by providing evidence. Nevertheless, in the vast majority of cases, questioning irregularities in the process (wherever possible) is a more effective way to challenge the process.




Assume that a government department invites tenders for a particular project. One of the eligibility conditions for the project is that the bidder must be structured as a private limited company. One of the bidders finds out that the entity awarded the contract for the project is actually a limited liability partnership and not a company. The bidder (who is not selected) can challenge the tender process on the ground that the government has arbitrarily awarded the contract – which is valid procedural ground of challenge since the winning bidder did not satisfy an essential term specified in the bid document.


Imagine another situation where a government-owned electricity distribution corporation invites bids from IT companies to build a web and mobile platform for it. One of the conditions for eligibility is that the entity must have prior ‘experience’ in web development, and that having served a Fortune 500 or a BSE Sensex client is preferable. Let’s say a company that has served two Fortune 500 companies and has prior experience of 10 years in web development is awarded the contract. Can another company which has greater experience say, of 15 years, and which has served four Fortune 500 companies in the past challenge this award?


No, the court will not go into the actual decision of the government. Such decisions are based on various commercial and technical criteria (it is even possible that the technical bid of the company which has relatively lesser experience was actually better qualified). Naturally, there is subjectivity involved in the decision making process. However, unless there is bias, mala fide or a clear procedural irregularity, a court will not entertain such challenges.



Important concepts that one should keep in mind in relation to intervention by courts are:


1. The court will not go into the decision of the bidding authority, but the manner in which the decision is made. For instance, if the bid documents provide that bidders have to meet x criteria. As long as x criteria is met, courts will not go beyond that and step into the shoes of the authority to determine whether between bidders A and B, whether A would have made a better contractor than B for undertaking the contract. The authority merely has to prove that there was a certain requirement in the bid documents, the authority accepted and analysed all bids in accordance with procedure and made a determination accordingly.

Courts have held that they have no role in the actual selection, which the authority is in the best position to judge. But procedures must be clearly set out and followed. If a bidding authority rejects a bid outright without seeing if it meets the criteria, or blatantly ignores the criteria and procedures that it has specified for the bid process, that would be a typical case for intervention by courts.


2. Courts will not award the contract in favour of a losing bidder, but require the authority to conduct the bid process again. If a bid process is challenged by a losing bidder, the court does not have the authority to change the winning bidder, or make a determination as to which bidder should be awarded the contract. If there is a violation of due process by the bidding authority, or errors in conducting the bid process then the court will annul the entire bid process and require the authority to conduct the process afresh.


3. Courts will not decide on whether the terms of the bid are fair, as long as all the bidders are treated equally in the bid process. If one of the bidders is in a different position from the terms of the bid more than others, either because it has certain information that others do not or because a term is altered after the award of the contract, this would be open to judicial scrutiny.


Example 1


Where tenders for a web-designing project are invited from businesses structured as companies, a web designing business carried out by a partnership may not be eligible (unless it is incorporated as a company), even though the partners have the requisite skillsets and experience. However, this cannot be challenged in a court.



Example 2


If a thermal power project is awarded to a bidder who (unknown to other bidders) knew that a coal linkage would form part of the bid package post award of the contract, other bidders who were not informed about this can challenge it, since this information would have materially altered the price they would have quoted in the bid stage.



4. There should be no bias or mala fides. Merely awarding the contract to one bidder and not another does not constitute bias. It should be supported by other evidence, such as procedure not being set out clearly or followed (as provided in (1) above), there being an error on the face of the record (such as 1 bidder providing a substantially superior bid than the other, and such bid being rejected without reasons on internal record), procedural bias (such as information and clarifications being provided to one bidder and not others), arbitrariness or unreasonableness (such as where criteria set out, or their implementation have no nexus with the object of the bid process, or there is a substantial deviation from the procedure set out).

Part 5

Incentives for SMEs in the procurement process


In March 2012, the Central Government released a policy (SME Procurement Policy) stating that it would reserve a minimum of 20 percent of its procurement requirements from micro and small enterprises registered under the MSMED Act (see module 4 for more details). The reservation requirement will be mandatorily applicable to all Central Government ministries, departments and public sector undertakings controlled by it (collectively referred to as the Central Government Entities) from 1st April, 2015, but Government departments have already started making arrangements to source from SMEs.


Refer Public Procurement Policy for Micro and Small Enterprises (MSEs) Order, 2012


Mechanism for fulfilling the reserved quota:

Usually, a contract is awarded to the bidder who is willing to perform it at the lowest price (provided he meets the technical criteria). This is known as the L1 price. Other bids which satisfy the technical criteria but are priced higher than the L1 price are rejected. However, a bid submitted by a micro or small enterprise may not necessarily be the lowest in terms of price – how should the government procure the reserved component of products and services from the SME in that case?


The SME Procurement Policy provides a special benefit to eligible enterprises. Micro and small enterprises which meet requisite technical criteria, but whose bids are priced at up to 15 per cent higher than the lowest bidder will not lose the tender. They will be given another opportunity – if they can match the L1 price, they can be selected to supply up to 20 percent of the amount sought to be procured. Does this prejudice the L1 bidder? No, this probably does not make a significant difference, since the winner will still be eligible to supply the balance 80 percent requirement. The order size that will reduce by 20 percent.


In addition, there are already 358 items (listed in the Appendix to the SME Procurement Policy) which must be exclusively purchased from micro and small enterprises by Central Government Entities as of date (uploaded on LMS).


Which SMEs are eligible for benefits under the SME Procurement Policy?

  • Micro and small enterprises which eligible for benefits must be registered with any of the following entities:
  • District Industries Centres under the MSMED Act (see module 4 for details of registration, or
  • Khadi and Village Industries Commission (KVIC), Khadi and Village Industries Board or Coir Board,
  • Directorate of Handicrafts and Handloom
  • National Small Industries Corporation – the NSIC operates a Single Point Registration Scheme for micro and small enterprises. Micro and small enterprises registered with the NSIC are eligible for an additional benefit, over and above the benefits under the SME Procurement Policy – they are exempt from payment of an earnest money deposit while submitting bids, and from payment of tender fees. 

In order to obtain registration under the scheme, micro and small enterprises registered under the MSMED Act must submit the registration form (available on the link below) with requisite documents to the zonal office of the NSIC (the list of zonal offices is also provided at the end of the form on the following link):



Several documents such as constitutional document of the bidder, resolutions, documents establishing ownership of plant and machinery and other materials are required to be submitted with the form.

Test Your Skills Now!
Take a Quiz now
Reviewer Name