The biggest challenge in the public procurement process is to harmonise the Public Procurement Bill 2012 with existing DGS&D rules, which counter each other, leaving the government and the industry in the lurch
By Kartiki Negi
Monday, October 21, 2014: Procurement by the Government of India (GoI) accounts for approximately 29 per cent of India’s GDP, and thus forms a critical component of the nation’s development. The Central government is the single largest customer for the information and communications technology (ICT) industry, procuring around Rs 50,000 million worth of ICT equipment, annually. The state governments, too, play an active part in the procurement process and the size of their combined orders is mind boggling.
The purchase preferences and decisions of the Central government define how technology is absorbed across all departments of the Indian government. Most importantly, they signal to the IT industry the direction in which R&D efforts ought to be channelised. However, there is a need to further strengthen the procurement process so that it is beneficial to both the government as well as to industry. “The message that we are trying to put across to our stakeholders in the government and within the industry is that there will have to be some sea changes if India aims to go through to the next level of public procurement,” said Arijit Sen, manager, corporate affairs, HP India while addressing the seminar on ‘Selling to the Government and Best Practices in Public Procurement: An Industry Perspective’, held on February 20, 2014, during the EFY Expo 2014.
The GoI has formulated a draft of its Public Procurement Bill 2012, which is designed to govern the procurement process for all Central government and public sector units (PSUs) in the country. However, the challenge lies in harmonising the Public Procurement Bill 2012 with existing DGS&D rules.
Highlighting the concerns over the bill and the existing procurement policy, Sen said, “It is necessary to address the challenge of aligning all other regulations and legislation that impact public procurement in India with this bill. Unless the current rules are aligned with the public procurement bill, there is going to be a situation of two horses pulling in opposite directions.”
According to Sen, the government can make procurement a smoother and more transparent process in a number of ways. Some of these are listed below.
Creating a mechanism within government procurement departments to support innovation procurement: Currently, the rules prevent the government from procuring from a single vendor. Unless the minimum number of industry vendors bid for a tender, the entire bidding process stands cancelled. “If the government wants to have cutting edge technology, it cannot afford to have its hands tied by such rules. This rule hurts both the government and a company that might have invested in the R&D that results in innovative products or services. This gives an impression that industry is getting penalised for getting into R&D and innovation, which seems to be unfair,” said Arijit Sen.
There are special provisions whereby the government can procure from a single vendor in cases where national security is concerned. For the remainder of cases, in general, there are a minimum of three bids, without which rate contracts (RC) stand cancelled. From a government perspective, this is to ensure proper price discovery and a level playing field. However, industry perceives the current procurement process as a barrier to domestic innovation since there is no provision for the R&D efforts of the industry to translate into government sales. For a sector like IT, where innovation is critical to growth, this process discourages government procurement from the industry, including from domestic start ups, which often develop cost effective, efficient and path breaking home grown products. Hence, the government should introduce provisions that enable end users to procure cost effective innovative products outside the scope of national security as well.
Implementation of the ERV clause in DGS&D rate contracts: The exchange rate variation (ERV) clause notified by the Ministry of Finance is aligned to the general financial rules (GFR), which means that it provides a fluctuation buffer for contracts of 18 months and above. This implies that the DGS&D rate contracts, which are for a period of just one year, are outside the scope of this clause.
“Over the last year, the rupee has depreciated by almost 30 per cent against the dollar, resulting in industry margins significantly getting eroded. Implementation of the ERV clause by the DGS&D will protect both the industry and the DGS&D from the cyclical nature of exchange rate fluctuations,” opined Arijit Sen.
According to industry experts, the matter can be resolved by the Ministry of Commerce and the Ministry of Finance if they revise this clause in the interests of the long term benefits that will accrue to both the industry and the government. Notifying the ERV clause for contracts of one year will enable the DGS&D to pass the benefits to end users when the rupee strengthens.
Recognition of existing IPR (intellectual property rights) in government procurement contracts: Government procurement terms often stipulate that upon purchase of a specific IT solution or system, the ownership of the IP of that solution, too, must get transferred to the government. Though this is important in case of solutions that affect national security, asking for ownership across the board puts the industry at a disadvantage.
Any solution, even one that is tailor-made for a specific government customer, is built on top of an existing IPR pyramid. The existing foundation or building blocks of this pyramid are common, and are an IT company’s primary strength, used simultaneously on a global basis by the company. All IT companies invest significant R&D when building their base IP, and most end user solutions are customised by adding to the base of this pyramid. It is therefore not possible for an IT company to share/sell this existing IPR to any specific customer.
Strengthening quality control through a green channel: While the current terms outlined for a vendor to qualify for the green channel are adequate to ensure the financial credibility of a company, they do not weed out poor quality. Hence, relevant quality parameters need to be set in place to protect end users as well as vendors. This is all the more relevant because of the current DGS&D rule that mandates the forfeiture of the Rs 5 million deposit by green channel vendors in case of any complaint related to quality.
Clear parameters that define quality need to be introduced as part of the DGS&D green channel system. This will ensure a transparent mechanism that demarcates complaints based on quality from general customer grievances. In addition to the profitability and turnover criteria, the green channel privilege should be linked to quality and sustainability parameters such as power efficiency, environment friendly standards, life cycle management, safety and security standards that are harmonised to international norms, and general compliance to the RC specifications.
Awareness on standards for procurement: It is very important to be aware of international and national standards in the area of safety, security, energy efficiency, performance and electromagnetic (EMI)/electromagnetic compatibility (EMC). There is a need to incorporate internationally harmonised standards in the procurement process and yet be aware of the scope and limitations of standards. The application of standards should be judicious and centered around the usage requirements to avoid introducing unnecessary complexity.
There is also an urgent need to make the industry aware about the standards followed for procurement, because the government will soon introduce a series of standards and non-tariff barriers. “We understand and appreciate the fact that these are to be put in place to ensure that no sub-standard material flows into the country but there is a need to have a consultative process. What we are asking is that that government should introduce the provisions that enable the end users, that is the government departments, to procure cost effective and innovative products. The government should not have its hands tied in any procuring department, simply because the rules say that only those vendors with a certain number of years of experience or a particular turnover can be procured from,” said Arijit Sen.
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