the procedure to go ahead with public procurement

1. PUBLIC PROCUREMENT
CONTRACTS
BY
Dinesh M Gupta IOFS(Retd)
Former DG & Chairman
Ordnance Factory Board

2. PUBLIC PROCUREMENT
 PUBLIC PROCUREMENT IS ACQUISITION OF GOODS,
SERVICES AND PUBLIC WORKS IN A TIMELY MANNER THAT
RESULTS IN BEST VALUE TO THE GOVERNMENT AND PEOPLE
2

3. QUANTUM OF PUBLIC PROCUREMENT
 Constitutes about 15% or more of GDP across the
countries
 In India, it is around 20 to 30% of GDP
 In India, it has grown from INR11,973 Billion to
INR16,637 Billion during last 5 years
 In Defence, it is around INR 100000 Crores per
annum

4. CONSTITUTION AND CONTRACTS
 ARTICLES 298, 299, 14 AND 19
4

5. ARTICLE 298, POWER TO CARRY ON TRADE
ETC.
 Under this article, Executive power of the Union and
States extends to carrying on of any trade, disposal of
property and making of contracts for the same I.e. Public
Procurement;
 For such PP, the Government does not require any
additional powers, it can have by entering to contracts;
 The power to enter into contracts for PP is therefore
expressly vested in the Government under this Article.
5

6. ARTICLE 299: CONSTITUTIONAL REQUIREMENTS OF A
GOVERNMENT CONTRACT
 All contracts made in the exercise of the executive power
of the union or state be expressed to be made by the
president or governor of state and all such contracts and
all assurances of property made in the exercise of that
power shall be executed on behalf of president or
governor by such persons and in such manner as he may
direct or authorize;
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7. ARTICLE 299: CONSTITUTIONAL REQUIREMENTS OF A
GOVERNMENT CONTRACT (CONTD)
 Neither president nor governor shall be personally liable
in respect of any contract or assurance made or executed
for purpose of constitution or any enactment relating to
goi in force nor shall any person making or executing any
such contract or assurance on behalf of any of them be
personally liable in respect thereof;
 In order that public funds may not be depleted by
clandestine contracts made by any and every public
servant there should be definite procedure according to
which contracts must be made.
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8. EQUALITY OF OPPORTUNITY IN THE MATTER OF
GOVERNMENT CONTRACTS
 ARTICLE 19(1)(G) CONFERS ON ALL CITIZENS A FUNDAMENTAL
RIGHT TO PRACTICE ANY PROFESSION (INCLUDES TAKING AND
EXECUTING GOVT CONTRACTS) CARRY ON ANY OCCUPATION,
TRADE OR BUSINESS;
 FAIRPLAY IN ACTION MUST BE THE BASIS OF THE POLICY OF THE
STATE- ART 14 APPLIES ALSO MATTERS OF GOVERNMENT POLICY
AND IF THE POLICY OR ANY ACTION OF GOVERNMENT EVEN IN
CONTRACTUAL MATTERS FAILS TO SATISFY THE TEST OF
REASONABLENESS IT WOULD BE UNCONSTITUTIONAL; BASIC
REQUIREMENTS OF ART 14 IS FAIRNESS IN ACTION BY STATE;
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9. SUMMARY OF GENERAL PRINCIPLES EMBODIED IN
CONSTITUTION
 PROFESSION OF DOING GOVT CONTRACTS IS A
FUNDAMENTAL RIGHT UNDER CONSTITUTION;
 PERSONS PRACTICING GOVT CONTRACTS CANNOT BE
TREATED ARBITRARILY OR CAPRICIOUSLY;
 GOVT CANNOT LIGHTLY BRUSH ASIDE A CONTRACTOR
WHOSE TENDER IS THE LOWEST; REASONS FOR REJECTIONS
SHOULD BE REASONABLE, COGENT AND ACCEPTABLE
WITHOUT ARBITRARINESS OR DISCRIMINATION;
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10. PRINCIPLES OF PUBLIC PROCUREMENT
 PUBLIC PROCUREMENT SYSTEM CAN BE SAID TO BE WELL
FUNCTIONING IF IT ACHIEVES THE OBJECTIVES OF
TRANSPARENCY, COMPETITION, ECONOMY AND EFFICIENCY
FAIRNESS AND ACCOUNTABILITY;
10

11. PRINCIPLES OF PUBLIC PROCUREMENT
(CONTD)
 Pp includes procurement by government and by statutory
boards and non-ministerial bodies;
 Pp must follow prescribed competitive procedures and the
rules give a major weight to fairness and equity;
 Pp is also subject to oversight by legislature and audit (in
addition to internal accountability mechanisms);
 Mistakes in pp can have vast political repercussions owing
to the focus that the media and the public place on the
subject;
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12. PRINCIPLES OF PUBLIC PROCUREMENT
(CONTD)
 A KEY PRINCIPLE OF GOOD GOVERNANCE PRESUPPOSES
CONSISTENT PRINCIPLES AND REGULATIONS FOR
PROCUREMENT;
 INFORMATION AND DOCUMENTATION ON THESE RULES
SHOULD BE WIDELY AVAILABLE AND THE RULES SHOULD BE
ENFORCED FAIRLY AND CONSISTENTLY;
 THERE SHOULD BE A WELL UNDERSTOOD SYSTEM FOR
REGISTERING AND RESOLVING COMPLAINTS SPEEDILY;
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13. PRINCIPLES OF PUBLIC PROCUREMENT
(CONTD)
 THERE SHOULD BE A WELL FUNCTIONING SYSTEM FOR
DISPUTE RESOLUTION AND CHECKS ON THE ARBITRARY
BEHAVIOUR OF PROCUREMENT ENTITIES AND ON THE
INCONSISTENT EXERCISE OF DISCRETIONARY POWERS IN
CONTRACT AWARD, ENFORCEMENT AND MANAGEMENT;
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14. PRINCIPLES OF PUBLIC PROCUREMENT
(CONTD)
 ACCOUNTABILITY AND TRANSPARENCY ARE VITAL TO
PROCUREMENT MANAGEMENT;
 LACK OF OVERSIGHT MECHANISM TO ENSURE
ACCOUNTABILITY UNDERMINES THE CAPACITY OF
GOVERNMENTS TO SECURE THE CONFIDENCE OF
CONTRACTORS AND SUPPLIERS IN THE PUBLIC
PROCUREMENT PROCESS AND THE TRUST OF CITIZENS IN
THE PROPER USE OF PUBLIC FUNDS;
14

15. PRINCIPLES OF PUBLIC PROCUREMENT
(CONTD)
 TRUST AND CONFIDENCE CAN BE ESPECIALLY ERODED BY
SECRECY IN PROCUREMENT TRANSACTIONS AT THE LOCAL
LEVELS (ALTHOUGH A DEGREE OF CONFIDENTIALITY IS
ESSENTIAL TO PROTECT BUSINESS PRIVACY AND THE
LEGITIMATE INTERESTS OF INDIVIDUAL BIDDERS)
 TRANSPARENCY REDUCES UNCERTAINTY AND INHIBITS
CORRUPTION IN PROCUREMENT BY ASSURING EQUALITY OF
ACCESS TO INFORMATION FOR ALL BIDDERS BEFORE, DURING
AND AFTER THE BIDDING PROCESS;
 THE SYSTEM SHOULD ALSO PROTECT THE INTERESTS OF THE
CITIZENS;
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16. PRINCIPLES OF PUBLIC PROCUREMENT
(CONTD)
 SOUND PP POLICIES AND PRACTICES ARE THUS AMONG THE
ESSENTIAL ELEMENTS OF GOOD GOVERNANCE;
 GOOD PRACTICES REDUCE COSTS AND PRODUCE TIMELY
RESULTS;
 POOR PRACTICES LEAD TO WASTE AND DELAYS AND ARE
OFTEN THE CAUSE FOR ALLEGATIONS OF CORRUPTION AND
GOVERNMENT INEFFCIENCY;
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17. KET ELEMENTS OF PUBLIC PROCUREMENT
 CLEAR, COMPREHENSIVE AND TRANSPARENT LEGAL
FRAMEWORK;
 CLEAR CUT FUNCTIONAL RESPONSIBILITIES AND
ACCOUNTABILITIES FOR PROCUREMENT FUNCTION;
 EFFICIENT INSTITUTIONAL FRAMEWORK;
 ROBUST MECHANISM FOR ENFORCEMENT OF POLICY, RULES
AND REGULATIONS;
 WELL TRAINED PROCUREMENT STAFF
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18. ESSENTIALS OF GOOD PUBLIC PROCUREMENT
 ECONOMY: BY OPEN COMPETITION;
 EFFICIENCY: BY EFFECTIVE PROCESSES;
 FAIRNESS: BY NON-DISCRIMINATION;
 TRANSPARENCY: BY OPENNESS;
 ACCOUNTABILITY: BY ADHERENCE TO PROCUREMENT LAW
OR ACT;
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19. EQUALITY OF OPPORTUNITY IN PUBLIC
PROCUREMENT
 MERE COMPLIANCE TO THE INDIAN CONTRACT ACT IS NOT
ENOUGH IN CASE OF GOVERNMENT CONTRACTS, BUT THEY MUST
ALSO SATISFY ARTICLE 14 AND 19
 ARTICLE 14: EQUALITY BEFORE LAW- THE STATE SHALL NOT
DENY TO ANY PERSON EQUALITY BEFORE THE LAW OR THE
EQUAL PROTECTION OF THE LAWS WITHIN THE TERRITORY OF
INDIA;
 HENCE TO SATISFY ARTICLES 14 &19 IN GOVERNMENT
CONTRACTS THE PROCESS OF PROCUREMENT SHOULD BE FAIR
&REASONABLE, FAIRNESS IN ACTION BEING THE BASIC
REQUIREMENT;
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20. EQUALITY OF OPPORTUNITY IN PUBLIC
PROCUREMENT (CONTD)
 TAKING GOVT CONTRACTS IS A PROFESSIONAL OCCUPATION
TO WHICH EVERY ONE HAS A FUNDAMENTAL RIGHT;
 PP HAS TO BE OPEN FOR ALL WHO ARE ELIGIBLE;
 SC HAS HELD “Today the government in a welfare state is
the regulator and dispensor of special services and
provider of a large number of
benefits,jobs,contracts,licenses,quotas, mineral rights
etc. The govt puts forth wealth, money,benefits,
services, contracts, quotas and licenses…..”
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21. FLAWS IN PUBLIC PROCUREMENT IN INDIA
 Absence of a comprehensive Procurement Act
 Lack of standard bid documents
 Delays in activities in procurement cycle
 Lack of trust in officers
 Unfair practices and corruption
 Presence of anti competitive elements

22. FLAWS IN PUBLIC PROCUREMENT IN INDIA
CONTD…
 Low participation of domestic MSMEs
 Absence of an independent grievance redressal
mechanism
 Competency and skill of procurement officers
 Associated Finance NOT aligned with
organizational goals
 CVC, CBI & CAG only do Post mortem
 L1 Policy

23. Judicial Review of
Public Contracts: Issues
 Determining element of Public Policy
 Restraints on the operational flexibility of the
Government agency
 Suspension and debarment – strict criteria
 Ever-widening scope of judicial review of executive
actions
 Administrative promptitude expected in responding to
requirements of law

24. In Summary
 Public Contracts are to be evaluated differently –
on grounds of public policy
 Compensation – given a wider scope than mere
contractual terms
 Individual liability – factor of “malice”; but still
unexplored judicially

25. CASE STUDY 1
 Procurement of Jackal Armour Plates for Bullet Proof & mine Protected
Vehicles by Ordnance Factory Medak in 2006
 Size: 6/4x1800x6300 mm, High Hardness 477 to 530 BHN level3 Protection
 Order was placed on M/S Prakash Agriculture Ind. Agra for 900MT quantity
against open tender. The firm failed to supply within stipulated DP. Later on
they offered a different make material of 750mm width. Although, the
material passed in practical trials but was not as specifications. Initially, the
GM/OF Medak, sent a fax to the firm, accepting alternate material but later
on withdrew the fax as purchase order was issued under OFB powers. In the
mean time, the firm despatched 100 MT of material, which was not accepted
by OF Medak. The firm filed a case against GM/OF Medak in High Court Andhra
Pradesh. The HC granted a stay. As a result, the procurement of this material
was stalled and vital defence production suffered. It took 2 years to sort out
the issue.

26. CASE STUDY2
 Ordnance Factory Khamaria issued an open tender for Box C48 Qty 25000 for
Tank Gun Ammunition in 2002
 8 vendors responded; 2 offers were technically rejected
 The store had to be as per CQA(A) specs details of which could be obtained
from CQA(A) Pune against payment by vendor
 One firm whose offer was rejected, objected the rejection
 They were told that their offer is not as per specs as they did not quote for
laminated paper containers for ammunition which was part of specs
 The firm went to MP High Court
 The judgement was in favour of the firm
 The case had to be retendered and resulted in one year avoidable delay

27. Case Study 3
 The Supreme Court of India in GJ Fernandez vs. State of
Mysore & Ors. [AIR 1967 SC 1753], considered the
question of whether the instructions contained in the
Mysore Public Work Department Code, has statutory force
or not. The Court held that in order for executive
instructions to have the force of statutory rules it must be
shown that they have been issued either under the
authority conferred on the State Government by some
statute or under some provision of the Constitution
providing therefore.

28. Case Study 3 Contd..
 Since, in the present case, the code had not been issued
either under the authority conferred on the State
Government by some statute or under some provision of
the Constitution, the Court held it to be in the nature of
administrative instructions and not statutory rules. Such
administrative instructions, which have no statutory
force, can therefore confer no right on any member of the
public to ask for a writ against Government by a petition
under Article 226 of the Constitution.

29. Case Study 4
 The Supreme Court in the case of India Thermal Power
Ltd v. State of Madhya Pradesh & Ors., [(2000) 3 SCC
379], in the context of Power Purchase Agreements (PPAs)
entered into by Independent Power Producers (IPPs) with
Madhya Pradesh Electricity Board (MPEB). On the
contention that appellant/IPPs had entered into PPAs
under the Electricity (Supply) Act and as such they are
statutory contracts and, therefore, MPEB had no power or
authority to alter their terms and conditions, the Supreme
Court held that merely because a contract is entered into
in exercise of an enacting power conferred by a statute
that by itself cannot render the contract a statutory
contract.

30. Case Study 4 Contd…
 If entering into a contract containing prescribed terms
and conditions is a must under the statute than that
contract becomes a statutory contract. Similarly, if a
contract incorporate certain terms and conditions in it
which are statutory then the said contract to that extent
is statutory. A contract may contain certain other terms
and conditions which may not be of a statutory character
and which have been incorporated therein as a result of a
mutual agreement between the parties. The PPAs in the
instance case were therefore regarded as statutory only
to the extent that they contain provisions regarding
determination of tariff and other statutory requirements
of Section 43-A(2) and not otherwise.

31. Thank You
 Contact : DM Gupta
 Mob: 9900726121
 Email : deeamgee@Hotmail.com