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By Avirup Nag and Arjun Sinha
While the Government of India (GoI) has formulated guidelines (such as Central Fiscal Rules, 2005 and the Defence Procurement Procedure and Manual) for government procurement, the jurisprudence on public procurement in India has developed through various judicial decisions. In order to regulate and ensure transparency in government procurement process, the Ministry of Finance has introduced the draft Public Procurement Bill, 2012 (Bill) in the Indian Parliament. Once enacted, the Bill will regulate the award of government contracts of over Rs. 50,00,000 by all ‘procuring entities’. The ‘procuring entities’ falling within the scope of the Bill include central governmental departments and ministries, constitutional bodies or entities set up under any Acts of the Parliament and as well as central government undertakings (i.e. entities/companies with 50% or more direct or indirect government shareholding). However, public procurements in certain scenarios (such as emergency procurements for disaster management or procurements for national security) have been carved out of the purview of the Bill.
Principles of Public Procurement
The Bill sets out some fundamental principles for public procurement, such as ensuring efficiency and competition, fair and equitable treatment of bidders, promotion of competition, and prevention of corrupt practices. The Bill contemplates giving effect to these fundamental principles through subordinate legislation. The Bill requires that every procuring entity clearly identify the subject matter of the procurement, the method of procurement that it seeks to follow along with any criteria of pre-qualification as well as any restrictions on bidders that it intends to place before initiating any procurement process. However, while procuring entities cannot set out a bidding criterion which discriminates or limits the participation of any bidder, the Bill empowers the procuring entities to promote certain categories of bidders and impose certain offsets against foreign bidders in order to promote domestic industry or further socio-economic policies. Additionally, the government/ procurers are also authorized to impose norms to limit participation on broad grounds such as protection of public health and order, morality, safety, intellectual property or Indian strategic interests.
Mechanism of Public Procurement
Various procurement methods that a procuring entity can opt for under the Bill are: (i) open competitive bidding; (ii) restrictive bidding; (iii) two-stage bidding; (iv) single source procurement; (v) electronic reverse auctions; (vi) request for quotations; (vii) spot purchase; or (viii) any other method notified by the GoI.
In all such cases, the procuring entity must evaluate bids on the basis of price, cost of operation, and professional and technical competence of the bidder. In order to prevent bidders from derailing any procurement process, the Bill proposes for fiscal penalties of up to Rs. 50,00,000 (or 10% of the assessed value of the procurement) for bidders who withdraw from the procurement process at an advanced stage.
Transparency and Anti-corruption Measures
The Bill envisages a Portal to be set up by the GoI to serve as a one-stop gateway for all requisite information on procurement to the stakeholders. Among other things, the Portal will provide information on pre-qualification documents, bidder registration documents, list of bidders, details of successful bidders, etc.
The Bill also provides for a code of integrity applicable on procuring entities and bidders. Certain indicative features of this code are set out in Section 11 of the Bill. The code requires bidders to disclose conflicts of interest, any prior defaults and also seeks to prohibit activities such as providing bribes or benefits/ rewards in exchange of an unfair advantage or influencing the procurement process, collusive activities between bidders, or any coercive practices by a bidder. Further, Section 11 of the Bill also intends to ban any financial or business transactions between the bidder and an official of the procuring entity. While acts done in good faith are protected, public servants found guilty of accepting a bribe can be punished by imprisonment between 6 months to 5 years. The courts are only allowed to take actions against GoI employees with the central government’s prior approval.
Any breach of the code of integrity can result in the exclusion of the bidder from the procurement process and forfeiting bid security. The procuring entity will also be authorised to recover any payments already made (with interest) along with cancelling the underlying contract and imposing compensation on the defaulting bidder. The procuring authority is also authorised to debar any defaulting bidder from participating in its procurement processes for a period of up to 2 years. Bidders can also be debarred if convicted for any offence under the Prevention of Corruption Act, 1988 or the Indian Penal Code for causing any loss of life or property or causing a threat to public health while executing a public procurement contract.
Any person found guilty of interfering/ influencing a bidding process can be imprisoned for up to 5 years and pay a Rs. 5,00,000 (or 10% of the assessed value of the procurement). This risk is especially important in the context of liability of a company’s officers, as Section 44 of the Bill states that for any offences committed by a company, each person in charge of and responsible for the conduct of the business of the company (subject to certain defenses) shall be deemed to be liable for such offence.
The Bill envisages setting up of one or more independent procurement redressal committees chaired by retired High Court judges to determine if a procuring entity has complied with the requirements of the Bill and any rules framed under it. However, these independent committees are barred from exercising its jurisdiction over certain issues (such as any provisions limiting participation of bidders, or cancellation of a procurement process as per the terms of the Bill). As a deterrent, penalties of up to Rs. 20,00,000 (or 5% of the procurement value, whichever is higher) can be imposed for any intentionally vexatious, frivolous or malicious complaints before these redressal committees.
Avirup Nag (pictured left) is a Counsel and Arjun Sinha (pictured right) is an Associate with Trilegal.
Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad. The firm has over 120 lawyers, some of whom have experience with law firms in the US, the UK and Japan.