The Viewpoint: The Public Procurement Bill  A Silver Lining with Some Clouds

The Viewpoint: The Public Procurement Bill A Silver Lining with Some Clouds

Bar & Bench

By Amitabh Kumar and Vishnu P Sudarsan

Public procurement is a sensitive aspect of governance and is often susceptible to waste, bribery and corruption. This is primarily on account of its complexity, the large financial outflows involved and the close interaction between public and private players. In a country reeling under successive scams and institutionally-entrenched corruption, a defined and efficacious public procurement law is the need of the hour.

On May 14, 2012, the Public Procurement Bill, 2012 (Bill/Act) was introduced in the Lok Sabha by the Finance Minister, Pranab Mukherjee. The Bill has been in development for almost a year, having had its origin in a promise made by Prime Minister Manmohan Singh in his 2011 Independence Day address.

The Bill seeks to regulate public procurement by the Central Government entities controlled by the Central Government. The Bill has the stated objective of ensuring transparency, accountability and probity in the procurement process, ensuring fair and equitable treatment of bidders, promoting competition, enhancing efficiency and economy and maintaining integrity and public confidence in the public procurement process.

A Step in the Right Direction

The Bill is a welcome step towards streamlining and regulating public procurement in India. It is a credible move towards checking the instances of and potential for malpractice and corruption in government procurement.

The Bill has codified the basic norms governing public procurement and places statutory obligations on procuring entities and bidders to comply with these norms. In a field that has been characterized by a disparate and fragmented regulatory framework, this codification is in itself the most significant aspect of the Bill.

The Bill has also laid down a code of integrity to be followed by the procurement entity and the bidders. The code of integrity covers bribe-taking and –giving, collusion and bid-rigging and interference in an audit of the procurement process. The procuring entity has also been empowered to take appropriate measures against a bidder for breach of the code of integrity.

General principles of procurement are laid down in the Bill. One of these principles is that the procuring entity must ensure that the price of the successful bid is reasonable and consistent with the quality required. This is an important consideration as it paves the way for rejection of sub-par bids.

The Bill has also categorically laid down the general principles to be followed during the procurement process and the conditions for use of, and brief procedures for, various methods of procurement. Of the various modes of procurement permissible under the Bill, one is electronic reverse auctions which have the scope to achieve desired efficiency n the procurement process.

Amongst the Bill’s most important features is a grievance redressal mechanism. The mechanism enables an aggrieved bidder or prospective bidder to seek review of any decision, action or omission of the procuring entity. The mechanism further provides for the constitution of independent statutory bodies in the form of procurement redressal committees. These committees consider the grievances of bidders or prospective bidders who are aggrieved by any decision of the procuring entity.

The Bill has also laid down provisions for offences and penalties relating to public procurement. This is significant since hitherto, malpractice by officials of the procuring entity has been mostly subject to administrative sanction. Under the Bill, however, punishment can extend to imprisonment, which should serve as a more effective deterrent.

Some Assembly Required

That said, the Bill is not without its share of failings. For starters, the Central Government has been vested with the power to declare any entity to be a procuring entity, because of which the provisions relating to public procurement will become applicable. This is an instance of unguided discretion – there is no guidance on how this decision is to be taken or the grounds and basis for such a declaration. This provision is also unclear on the issue of whether such notification will be qua an entity or a class of entities engaged in the provision of public utility services.

The Government is also empowered to exempt procurement for ‘strategic considerations’ and ‘national security’ from the provisions relating to grievance redressal and transparency mechanisms. Both these terms have not been defined and are thus ambiguous, leaving wide scope for discretion.  Such leeway, without suitable safeguards, is not in consonance with the stated objectives of putting in place an effective public procurement dispensation. It is suggested, therefore, that if an exemption is notified, such an exemption should have sunset clause. Further, the public interest, national security or strategic considerations sought to be achieved should be clearly spelt out in the relevant notification.

The Bill also permits preferential procurement. Such stipulations are restrictive and reduce the competitiveness of the Indian economy. Such retrograde measures to develop the domestic sector are counter-productive and are unlikely to be successful. The Government should provide for a level playing field and should not discriminate amongst bidders or permit preferences in procurement. At best, socioeconomic conditions may be imposed on bidders instead.

The Bill also allows for restricting participation on the ground of public morals, safety, order or to protect human, animal, plant life or health. Such wide-ranging provisions defeat the objectives and purpose of the Act unless they are directly linked and co-related to the procurement in question.

The grievance redressal mechanism provided for in the Bill stops short of being effective – the directives of the procurement redressal committees are merely recommendatory in nature as the procuring entity has the option of not accepting the recommendations of the procurement redressal committee.

One of the grounds on which the procurement redressal committee can be approached is if the procuring entity fails to dispose of a review application within the time stipulated. However, it is notable that no specific time limit has been stipulated for disposing of an application – the procuring entity must merely endeavour to complete the review within 30 (thirty) days.

Further, a procuring entity is permitted under the Bill to engage in restricted bidding due to urgency brought about by unforeseeable events or if the procuring entity is of the opinion that procurement cannot be usefully obtained through open competitive bidding. This provision does not have objective safeguards to prevent this becoming an unchecked power which militates against the very principle of a transparent procurement framework. Recent scams clearly evidence potential of misuse of such provisions.

International Perspective

The Organization for Economic Co-operation and Development (OECD) in its Principles for Integrity in Public Procurement has highlighted various principles and steps for ensuring integrity in the procurement process. Many concerns of primacy thus highlighted by OECD have been given sufficient attention in the Bill, including the documentation of key decisions, clarity on the choice of procurement method, effective compliant redressal, and the induction of professionalism.

OECD has also identified two stages of the procurement cycle that are most vulnerable to irregularities – needs assessment and the exemptions from competitive procedures. The Bill has paid due regard to needs assessment under Section 7 and has even provided for publication of information regarding planned procurement activities for the forthcoming year or years. However, as detailed above, the discretion permitted in relation to exemptions is not subjected to suitable guidance and regulation.

Some other points observed by OECD are worth considering for inclusion in the fledgling procurement law. These include compulsory risk-mapping and subjecting public procurement to media scrutiny in order to ensure higher standards of integrity and transparency.


As the old adage goes, the true test of the pudding is in the eating. The efficacy and soundness of this legislation will be put to the test in the years to come when it faces the tripwires and travails thrown up in the process of implementation. In this ultimate analysis, the Bill has the potential to be a game-changer, being as it is a significant development in the improvement and enhancement of the systems of governance in the country.

Amitabh Kumar (pictured right) & Vishnu Sudarsan (pictured left) are Partners with JSA. Associate Kartikeya GS assisted the Partners. Views of the authors are personal.

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