Material management in public administration

1. Introduction to Public Procurement
by
V K Mathur
Ex General Manager (MM & Mktg),
Steel Authority of India Ltd.
https://www.materialsmanagement.info

2. Outline of Presentation
 Public Procurement
 Existing Provisions
 Principles laid down by Supreme Court
 Weaknesses
 Way forward
 Salient features of Public Procurement Bill
 Procurement Audit Check List

3. What is PROCUREMENT ?
United Nations Commission On International Trade Law (UNCITRAL)
Procurement means the acquisition of goods, construction or services by a procuring authority.
United Nations
Procurement functions include all actions necessary for the acquisition, by purchase or lease, of
property, including products and real property, and of services, including works.
Public Procurement Bill 2012
‘’Procurement’’ or ‘’public procurement’’ means acquisition by purchase, lease, licence or
otherwise of goods, works or services or any combination thereof, including award of Public
Private Partnership projects, by a procuring entity, whether directly or through an agency with
which a contract for procurement services is entered into, but does not include any acquisition
of goods, works or services without consideration, and the term ‘’procure’’ or ‘’procured’’ shall
be construed accordingly.

4. Timely Determination of
Requirements
(Goods/Works/ Services)
Finalization of Technical
Specification & Commercial
Conditions
Mode of Bidding
-Open Tendering
-Limited Tendering
-Nomination
Type of Bidding
-Single Stage Single Envelope
-Single Stage Two Envelope
-Two Stage
Bid Submission/Receipt
-e-bids
-paper bids
Bid Evaluation
-General Compliance to Bid Conditions
-Qualification of Bidder
-Technical & Commercial Compliance
-Capacity & Capability of Bidder
-Price
-Award to Lowest
Evaluated Responsive Bidder
-Contract Signing
- Performance Guarantee Submission
Contract Monitoring/Follow up
Availability of Funds and Land
& Statutory Clearances
wherever required
Acceptance of
Goods/works/services
Invoice Verification
Payment
Cycle
Procurement

5. Public Procurement
Government procurement, also called public tendering or public procurement, is the
procurement of works, goods and services on behalf of a public authority, such as a
government agency. A well functioning procurement system can be said to be in place if
it achieves the objectives of transparency, competition, economy, efficiency, fairness and
accountability.
As the economy grows, the size of public expenditure becomes larger
and procurement is one of the most important activities in governmental operation.
Therefore, public procurement can influence many areas and change the way of doing
things in the nation. That is the power of public procurement.

6. Constitutional provisions
The Constitution of India authorises the Central and State Governments to
contract for goods and services in the name of the President of India or the
Governor of the State (respectively), and directs autonomy in public spending.
However, it does not stipulate any procurement policies or procedures.

7. Legislative provisions
• There is no comprehensive central legislation exclusively governing public
procurement. Nonetheless, various procurement rules and policies are
guided by central legislations such as the Contract Act 1872, Sale of
Goods Act 1930, Prevention of Corruption Act 1988, Arbitration and
Conciliation Act 1996, etc.
• In addition, certain states, like Tamil Nadu, Karnataka, Andhra Pradesh,
Assam and Rajasthan have enacted state-specific legislation such as the
Tamil Nadu Transparency in Tenders Act, 1998, Karnataka Transparency
in Public Procurement Act, 1999, the Rajasthan Transparency in Public
Procurement Act, 2012, etc., that govern procedure for procurement in
these states.

8. Administrative guidelines
• Comprehensive administrative rules and directives on financial management
and procedures for government procurement are contained in the General
Financial Rules ("GFR") initially implemented in 1947 and last modified in
2017. All government purchases must strictly adhere to the principles outlined
in the GFR, which include specific rules on procurement of goods and
services and contract management.
• In 2017, the government issued the Public Procurement (Preference to Make
in India) Order 2017 which grants purchase preference to local suppliers
based on certain conditions so as to promote manufacturing and production of
goods and services in India.

9. Principles laid down by Supreme Court
• Government organizations are not allowed to work in secrecy in dealing with contracts,
barring rare exceptions.
• Reasons for administrative decisions must be recorded, based on facts or opinions of
knowledgeable persons again based on facts.
• Tendering Process or Public Auction is the basic requirement for the award of any
contract.
• Adequate publicity is essential.
• Officers engaged in public procurement have to perform fiduciary duty.
• There has to be fair play in the actions for procurement.
• Bid evaluation has to be strictly in accordance with the bid evaluation criteria stated
while inviting the bid.

10. Executive Instructions
Rules, Guidelines Governing Public Procurement :
• General Financial Rules (GFR), 2017
• State GFRs
• Delegation of Financial Powers Rules (DFPR), 1978
• Guidelines issued by the Central Vigilance Commission (CVC)
• Guidelines issued by the Directorate General of Supplies and Disposal (DGS&D)
• Manuals on the procurement of goods, services and works issued by the Department of
Expenditure, Ministry of Finance.
• Guidelines on procurement issued by individual Ministries / Departments, PSUs etc.
• Legislation on procurement enacted by individual states - Tamil Nadu and Karnataka

11. Other Laws relevant to public procurement
Transparency, competition and curbing of probity issues are further ensured through:
• Competition Act, 2002: Penalises anti-competitive activities such as bid rigging, collusive
bidding, cartelisation etc.
• Right to Information Act, 2005: Promotes transparency in government dealings by
entitling Indian citizens to expeditiously procure information from the government
• Integrity pact under the GFR and CVC guidelines: Addresses probity in procurement
activities including through the appointment of an external monitor to mitigate corruption
and ethical risks.
• Prevention of Corruption Act, 1988 and Prevention of Money Laundering Act, 2002:
Penalise bribery and money-laundering

12. Entities covered by legislation as Purchasers
• Government and government agencies
• Entities otherwise deemed to be 'state entities' for the purposes of the Constitution
• All ministries and departments of the Central and State Governments
• Corporate entities owned/controlled by central or state governments, public authorities
exercising statutory powers
• Autonomous bodies that are created or owned by, or receive grants from, the Government
• Entities whose services are being utilised by the entities mentioned above

13. General Financial Rules (GFR) 2017
GFR contains a few chapters specific to public procurement :
• Chapter 5 outlines the concerned rules for the procurement of works
• Chapter 6 outlines the rules for procurement of goods and services
• Chapter 8 describes the contract management issue

14. Main features of GFRs
• Defines works, goods, and services to be procured and the scope of public procurement
• Outlines the fundamental principles of public procurement like enhancing transparency and
efficiency, instilling fair practice, and promotion of competition
• Describes different procurement methods and their applicability
• Prescribes Code of Integrity
• Specifies tender award criteria
• Outlines general principles and rules of contract management

15. Financial thresholds for determining individual contract coverage
• GFR applies to all instances of procurement of goods required for use regardless of the
value of the goods. However, monetary thresholds are involved in the following instances
under the GFR:
• Purchases of up to INR 250,000 can be made at the discretion of the ministry/department
by issuing purchase orders containing basic terms and conditions
• For works contracts valued at: (a) INR 100,000 – INR 1,000,000, the letter of acceptance
will result in a binding contract (subject to certain conditions of contract being included in
the tender document); and (b) INR 1,000,000 and above, a contract must be executed
(which can be a "simple one page contract" where preceded by an invitation to tender and
conditions of contract)

16. Financial thresholds for determining individual contract coverage contd.
• Goods can be purchased without inviting bids: (a) on the basis of a certificate from the
competent authority, where the goods are of up to INR 25,000 in value; and (b) on the
recommendation of the relevant Local Purchase Committee if between INR 25,000 and
INR 250,000 in value.
• A limited tender enquiry (with no advertisement necessary) can be pursued for goods
valued less than INR 2,500,000.

17. Financial thresholds for determining individual contract coverage (contd2)
• The monetary ceilings for direct online purchases on the Government e-Marketplace
("GeM", a portal for the purchase of common use goods and services) are as under:
• up to INR 50,000: through any of the available eligible suppliers on GeM;
• INR 50,000 – INR 3,000,000: eligible GeM seller having the lowest price of amongst at
least three different manufacturers; and
• over INR 3,000,000: eligible supplier having the lowest price after mandatorily
obtaining bids using the online bidding/reverse auction tool.

18. Overseers
The framework is bolstered by authorities including:
• the Central Vigilance Commission ("CVC") tasked with increasing transparency and
objectivity in public procurement;
• the Competition Commission of India ("CCI") which checks anti-competitive elements; and
• the Central Bureau of Investigation ("CBI") engaged for investigation and prosecution of
the criminal activities in the procurement process such as probity issues.
• Audit (CAG)

19. Principles of Public Procurement
• Economy : Getting the right thing at the right price -Value for Money (vfm)
• Efficiency : Arrival of item in the right place at the right time for its intended
use -Money for Value(mfv)
• Transparency: letting everyone know ,not only the facts and figures of
procurement but also the mechanisms and procedures followed
• Equal Opportunity and Fairness: Being objective and ensuring impartial,
unbiased and equitable treatment of tenderers by conforming with rules and
standards free from discrimination and dishonesty

20. Fundamental approach
• Open tendering
• Effective Advertisement
• Non-discriminatory tender conditions & Technical specifications
• Public tender opening
• Award to most advantageous bidder

21. Weaknesses in the existing system
• Absence of a dedicated Policy making Department
• Absence of Legal Framework
• Absence of Standard Documents
• Nomination basis
• Limited number of Suppliers / List of Registered Vendors
• Two Envelope System
• Delay in Tender Processing and Award Decision
• Works contract
• Negotiation

22. Way Forward
• Public Procurement Law
• Institutional framework preferably dedicated department/unit within the Ministry of Finance
• Standardization including the procedures, tender documents and general conditions of
contract
• Competitive bidding should be the norm for procurement unless permitted and justified in
special cases
I. Evaluation criteria should be clearly spelt out in tender documents
II. Evaluation as per the declared criteria
III. Public opening of tendering should be mandatory
IV. Introduce debriefing procedure
V. Result of the tendering process in the Public domain

23. • Switch over to e-procurement regime (Korea Online E-procurement System)
• Reforms in works Procurement
 For all development projects, the executing agencies shall carry out procurement
planning (statutory clearances, land acquisition & availability), logistics, contract
packaging, scheduling and firming up of funds before sanction.
 Schedule of rates should be reviewed and revised
 Contractors past performance data should be maintained
 Bid capacity – Finance, equipment, personnel & past performance should be mandatory
criteria
• Regular Training Programmes
• Performance Indicators

24. The Public Procurement Bill –Objectives
(2012,2015)
• A legislation to regulate public procurement by all Ministries and Departments of the
Central Government, Central Public Sector Enterprises, Autonomous and Statutory
bodies controlled by the Central Government and other procuring entities;
• Ensuring transparency, fair and equitable treatment of bidders, promoting competition
and enhancing efficiency and economy in the procurement process;
• Maintaining Integrity and public confidence in public procurement process

25. Basic Features
• Five Chapters (Preliminary ,Principles & Methods of Procurement ,Institutional
Mechanism, Offences penalty & debarment ,Miscellaneous)
• To be supplemented by Rules for procurement of Goods, Works and Services. Separate
sets of Rules for:
 Procurement for the purpose of national security
 Entering into Public Private Partnerships
 Procurement by Central Public Sector Enterprises
• Exemptions from the law in certain circumstances
• Key transparency and accountability norms incorporated from international best practices
• Expeditious and streamlines grievance redressal procedure

26. Procurement Audit Check List (1)
• Whether the procurement plans, and APP prepared and displayed?
• Whether the procurements were made as per the procurement plan?
• Whether the method adopted for procurement and all the steps as per the purchase policy
were Taken?
• Whether the Tender Selection Committee/ Evaluation Committee was constituted and
involved in the procurement procedure?

27. Procurement Audit Check List (2)
• Whether the overall procurement was done within a reasonable time?
•Whether there was any avoidable delay at any stage/ stages of the procurement process?
• Whether the necessary approval(s) was taken from appropriate authority wherever
required?

28. Procurement Audit Check List (3)
• Whether proper and adequate documents were maintained?
• Whether the pre-qualification screening for issue of tender documents was done properly
and in a fair manner?
• Whether the technical and financial evaluation was done properly and in fair manner?

29. Procurement Audit Check List (4)
• Whether the contracted firm, supplied the goods or executed the work as per the quality,
quantity and price indicated in the contract agreement/ supply order?
• Whether the goods were supplied or works executed in time and properly recorded in
measurement books and stock/works registers after inspection?

30. Procurement Audit Check List (5)
• Whether the payment was made to the supplier/ contractor within the time frames indicated
in the contracts? If not, reasons for delay.
• Whether the EMDs and securities were returned within the time frames indicated in the
contracts? If not, reasons for delay.

31. Summing up…….
India's regulatory and institutional framework seek to ensure responsibility,
accountability and efficiency in the public procurement regime. The
underlying principle is to procure materials/services of specified quality at the
most competitive prices in a transparent and non-arbitrary manner

32. Thank you
Have a nice day
V K Mathur
https://www.materialsmanagement.info