BuyLaws Revisiting Debarment amp Suspension in Government Contracts

BuyLaws Revisiting Debarment amp Suspension in Government Contracts

Bar & Bench

We are happy to let our readers know that Bar & Bench is introducing a new fortnightly column on public procurement law in India titled “BuyLaws”. The columns will be authored by Sandeep Verma, an officer in the Indian Administrative Service and an expert in this area. Sandeep Verma also runs the website BuyLawsIndia.

By Sandeep Verma

From a legal perspective, the regulatory landscape for government contracts in India can be both complex and challenging. Suspension and debarment of erring contractors is one such aspect, and procurement professionals will recall the long-drawn back-and-forth between Delhi Metro Rail Corporation (DMRC) and some of its contractors on the extension of DMRC debarment orders to other procuring entities—an issue that currently finds echoes in the context of the ongoing CBI investigations into the conduct of a large number of suppliers for CWG contracts. With the exponential increase in government contracting volumes, and given the increased government focus on probity and integrity, it may perhaps be useful to highlight areas requiring clear policy and operational guidance on various aspects of suspension/ debarment in government contracts in India.

PSUs have generally followed well-drafted, if not well-implemented, Standard Operating Procedures[1] for suspension/ banning of business dealings with suppliers on grounds of integrity violations and/ or on account of certain actions or assessments relating to a supplier’s reliability and responsibility.  However, a Central Vigilance Commission order[2] of 2005 takes an extremely open-ended position altogether, allowing for banning of such business dealings wherever necessary—a ground intrinsically open to differing interpretations by different stakeholders. On the other hand, the Ministry of Finance[3]/ Department of Public Enterprises (DPE) Guidelines[4] on integrity pacts that were recently applied to all government departments and PSUs generally restrict such actions only to cases of violation of a supplier’s obligations through bribery and use of undue influence. Most importantly, the draft Public Procurement Bill (the PP Bill) that was recently placed before the Parliament[5], limits the grounds for debarment only to a small handful of cases where there has been a conviction for an offense under the IPC, the Prevention of Corruption Act and such like: perhaps the narrowest ground for debarment to be found worldwide.

This, of course, is just an instance of divergence in operational guidance on only one aspect of suspension/ debarment, namely, the permissible grounds for such action by procuring entities and government departments. If one were to scan the complete regulatory landscape—PSU procurement manuals (or General Financial Rules—GFR 2005—in case of government departments), the MoF/ DPE Guidelines, CVC orders and the PP Bill, procurement practitioners are equally unlikely to arrive at consensus on many other aspects of suspension and debarment, such as the scope of such debarment/ suspension (supply contracts alone or the complete banning of all business dealings altogether); the applicability of such orders to future and/ or current (ongoing) contracts; or even the forum for challenging such debarment orders (CMD of the PSU/ Head of the Department under departmental circulars; Procurement Redressal Committees under the PP Bill; and/ or Independent External Monitors appointed under integrity pacts). Quite interestingly, an articulation of the differences between black-listing, debarment, suspension and banning of suppliers was attempted to be outlined for the first time in a recent order[6] of the Ministry of Urban Development, rather than being addressed by any relevant oversight body such as the CVC or the Department of Expenditure.

This circular also briefly touched upon the possible overlap between “de-registration” of suppliers, which is a routine administrative action related to capability determination of suppliers; and “debarment/ suspension” which is required to be a far more formal proceeding generally related to responsibility assessments of suppliers. However, given the lack of regulatory mandate to the Ministry of Urban Development in issuing such pan-Government orders, exhaustive guidance on de-registration vis-à-vis debarment/ suspension continues to remain unavailable to procurement stakeholders.

This disharmony amongst rules and regulations originating from various government sources perhaps is a result of varying appreciation of the constitutional and legal underpinnings of debarment and suspension, as also perceptional differences as to whether suspension/ banning is merely an additional penalty for integrity violations or whether it relates to the overall reliability and responsibility profile of a contractor. In addition, risk-aversion tendencies inherent amongst public procurement officials worldwide find reflections in Indian practice as well—cases either keep moving horizontally and vertically for clarifications from the maximum number of oversight bodies as may be possible, leading to delayed decision-making, and/or procuring and oversight officers tend to take the most expansive positions in extending debarment/ suspension across as many entities, as many transactions, and as many contracts as possible, leading to erosion of efficiency, competition, and value-for-money in the process.

Addressing this complex scenario may therefore require a back-to-basics approach, extending right up to Article 19 and Article 14 of the Indian Constitution, as well as going back to the law and theory of contracts. Article 19 of India’s Constitution grants the right to a profession of one’s choice subject to reasonable restrictions, while Article 14 grants the right to fair and equitable treatment to all Indian citizens. It therefore comes as no surprise that Indian courts have consistently stressed upon: (i) the need for formal orders for suspension/debarment, rather than the adoption of de-facto or ad-hoc approaches; and (ii) that such orders must satisfy principles of natural justice, in terms of an opportunity to the affected party to show-cause against proposed actions: two very simple and yet very powerful concepts that effectively protect constitutional rights of affected parties and ensure due process.

In addition to these important legal requirements, practical experience indicates a clear need for prudential decision-making by procuring entities, in terms of a careful examination of potential impact on ongoing government contracts, both within the same procuring entity and outside, before any expansive decision is taken. The international best practice is to apply debarment/ suspension orders only to the particular procuring entity, rather than an omnibus, government-wide/ entity-wide application that can potentially throw up wild cards and unexpected bottlenecks that can ultimately affect unsuspecting arms and agencies of the Government themselves. Another international best practice is to apply such debarment/ suspension orders only to future contracts, unless there is a clearly-demonstrated, overriding public interest in their extension to ongoing contracts, in order that ongoing contract performance is not unduly affected to the detriment of the government contracting party because of such unforeseen risks and contingencies.

Sandeep Verma holds an LLM with highest honours, having specialised in Government Procurement Law from The George Washington University Law School, Washington DC. Views expressed are personal and academic. In 2009, he established, a website dedicated to the advancement of public procurement research in India.

Image from here.

[1] See,; and The ONGC Circular 11/2006 also talks of putting an erring firm “on holiday”.



Bar and Bench - Indian Legal news