By Sneha Baul, Campus Law Centre, Faculty of Law, Delhi University.

Government Procurement, also called public tendering or public procurement, is the process of purchase of goods and services and technologies by a government and public entities to fulfill the needs of public authority to carry out its responsibility towards citizens. Along with the modes of procurement, it is regarded as the significant activity of a country as around 20% to 30% of Gross Domestic Product (GDP) comprises of government procurement. Along with the value for money, it seeks to attain the welfare objectives of a country. The method of procurement requires the procuring authority to issue public tenders if the value of the procurement exceeds a certain threshold.

GOVERNMENT PROCUREMENT IN INDIA:

Government procurement forms a major part of Indian economy. It is utilized for smooth operations of governmental operations of governmental agencies, for promoting economic development. With proper initiatives for strengthening economic growth and socio-development it can foster positive changes in several respects- it can sharpen the evolving competition regime in India, enhance trade, and ensure better access to essential facilities for its people. But unfortunately, Indian government procurement lacks transparency and accountability. Besides, there is lack of awareness on the part of government which leads to under utilization or poor performance in the system. For example, there is no machinery to adhere to the guidelines as there is no central law on government procurement.

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RATIONALE:

The main purpose of public procurement policy is to obtain best value for money by promoting competition among suppliers and provide incentives to consolidate the procurement cycle.

Illustration:

Are Dassault Rafale air jets the best procurement for the value of money?

Ans: Dassault Rafale met the minimum specifications for defense purpose; French Rafales flew demonstrations in India, including air-to-air combat against Su-30MKIs. Indian Air force shortlisted Dassault for its modernity and agility. Therefore it can be said to be the best procurement. The deal was stalled from disagreements over the fighter production in India. Dassault refused to take responsibility for the 108 HAL-manufactured Rafales, as it had reservations about the ability of HAL to accommodate the complex manufacturing and technology transfers of the aircraft. Instead, Dassault said it would have to negotiate two separate production contracts by both companies. The Indian Defence Ministry instead wanted Dassault to be solely responsible for the sale and delivery of all 126 aircraft. In May 2013, The Times of India reported that negotiations were “back on track”, with plans for the first 18 Rafales to be delivered in 2017.

CURRENT SCENARIO OF INDIA IN GOVERNMENT PROCUREMENT:

But recently, India has been marked by massive scams in a variety of sectors.

Even though government procurements form a major part of GDP, yet there is no central law on it. India’s response was the highest levels in the government contemplated measures for tackling corruption and the GROUP OF MINISTERS (GOM) on Corruption was set up in 2010-2011. The GOM, inter alia, recommended the establishment of Committee of Public Procurement Law and the same was set up having representatives from major procuring departments of the Central Government. The Committee submitted its report in June, 2011, which inter alia, analyzed the short comings in the system and recommended the enactment of Public Procurement Law.[1]

In 2010, India attained the status of ‘observer’ of the Agreement on Government Procurement of the World Trade Organization. Not all members of WTO are part of it but it includes almost all major trading partners of India.

ELEMENTS OF GOVERNMENT PROCUREMENT:

Government procurement in India has to be looked at from the international perspective due to globalization and widening of economy.  The existence and well functioning of administrative hierarchy is pioneer for the success of the procurement process.

ORGANIZATION STRUCTURE:

There is no central legislation governing procurement in India. Comprehensive rules and directives in this regard are contained in the General Financial Rules (GFR) 2005 and Delegation of Financial Powers Rules (DFPR) 1978, issued by the Department of Expenditure in the Ministry of Finance, The Directorate General of Supplies & Disposals (DGS&D) has its own manual of procurement, and Central Vigilance Commission (CVC) prescribes guidelines to be followed by all central entities. Other laws which affect Government procurement are

  • The Contracts Act 1872[2],
  • The Sale of Goods Act, 1930[3],
  • The Law on Arbitration[4] ,
  • The Limitation Act[5], 1963
  • Right to Information Act, 2005,
  • Information Technology Act 2000,
  • The Prevention of Corruption Act 1988, and
  • The Competition Act, 2002 (where the competition issues are involved)
  • Foreign Exchange Management Act, 1999
  • The Negotiable Instruments Act, 1881

The public procurement in India is governed by the following laws:

GENERAL FINANCIAL RULES:

The General Financial Rules (GFR), developed by the Ministry of Finance, contains the principles for general financial management and procedures for government procurement. The rules contained in chapter 6 talks about the procurement of goods and services, while chapter 8 deals with contract management. It is the law that all government procurements should strictly adhere to the principles structured in the GFRs. The Manual on Policies and Procedures for Purchase of Goods contains guidelines for the purchase of goods and services.

The GFR was amended in 2005. The GFRs 2005 provide guidelines to which the procedures adopted by the procuring agencies must conform. Ministries or Departments that procure are free to set out their own procedures provided that conforms to the GRFs. 

THE DIRECTORATE GENERAL OF SUPPLIES & DISPOSALS:

The role of DGS&D is now limited to procuring items of common use by many ministries (Rule 140 GFR, 2005). DGS&D maintain lists of suppliers and consultants and finalizes the rate and running contracts for items of common use. For these purposes, certain guidelines have also been issued by DGS&D in the form of manual, which also form a part of the legal framework for procurements in India.

THE COMPETITION ACT, 2002:

The Competition Act, 2002 prohibits any agreement which causes, or is likely to cause, appreciable adverse effect on competition in markets in India. Bid rigging or collusive bidding is an agreement between some suppliers to eliminate competition, increase price of products and deny fair price to producers that shall be presumed to have appreciable adverse effect on competition under Section 3 of the Act and hence is void.

Practices of bid rigging etc. are considered serious criminal offences, as they tantamount to a fraud on public exchequer, and have deterrent liabilities of imprisonment, and severe fines. In India, there are provisions under the Competition Act, 2002 for imposition of severe penalties for such offences.

RIGHT TO INFORMATION ACT, 2005:

Under the Right to Information Act, any person or entity may request information from a “public authority” (a body of Government or “instrumentality of State”) which is required to reply expeditiously or within thirty days. The Act also requires every public authority to computerize their records for wide dissemination and to proactively certain categories of information so that the citizens need minimum recourse to request for information formally. It helps in maintaining transparency and fair treatment to suppliers or tenderers.

FOREIGN EXCHANGE MANAGEMENT ACT, 1999:

The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India. Mostly the government procurements deal with big amounts of procurements. The payment of which has to be done in foreign exchange. The buying and selling of foreign currency and other debt instruments by businesses, individuals and governments happens in the foreign exchange market.

E-PROCUREMENT:

E-Procurement is the purchase of goods and services through electronic mode of interface. The entire process is IT enabled management. Notice, inviting bids, supply of tender documents, receipt of bids, evaluation of bids, award of contract, payment, and all the systematic procedure is fulfilled over the electronic mode. In order to make the procurement process cost effective, improve efficiency and transparency, the Government aims to make procuring procedure electronic. The Director General (Supplies & Disposal) has made significant progress in this direction and the National Informatics Centre is engaged in pilot projects to design a secure IT solution addressing concerns like encryption / decryption of bids, digital signatures, secure payment gateways, date/time stamp for activities, access control etc.[6] The Ministries are supposed to publicize all their tenders on their websites. E-procurement invokes the INFORMATION TECHNOLOGY ACT, 2000.

CONCLUSION: CHOICES BEFORE INDIA

There are several strategic options before India for arriving at the necessary solutions for preventing corruption. The country can opt between implementing unilateral reforms in the shape, of enacting comprehensive modern law. It can also choose to accede to the WTO’s Government Procurement Agreement (GPA), an important internationally recognised legal framework promoting competition, transparency and integrity in the procurement process. India may even opt for bilateral and regional trade agreements on government procurement.  FOR INSTANCE, the India-Japan Free Trade Agreement (FTA), 2011 provides a rudimentary accord for information-sharing on rules and regulations in government procurement of the respective governments.

References:

[1] Government Procurement in India: Domestic Regulation and Trade prospects.

[2] No. 9 of 1872

[3] No. 3 of 1930

[4] The Arbitration and Conciliation Act, No. 36 of 1996

[5] The Limitation Act, No. 36 of 1963

[6] Government of India, Ministry of Finance , Manual on Policies & Procedures for Purchase of goods,

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