Abstract
Public Procurement is a key economic activity of governments that represents a significant percentage of the Gross Domestic Product (GDP) generating huge financial flows. Thus, an effective procurement system plays a strategic role in governments for avoiding mismanagement and waste of Public Funds – Tax Payers Money. Establishment of a Regulatory Bodies and Comprehensive, Transparent Legal and Institutional Framework in Public Procurement activities as one among the most important activities guarantees Transparency and Accountability in the use of public funds. While drafting Regulatory Framework more emphasis shall be made for procurement ethical practices towards achieving the obligation of providing goods, works and services to meet a variety of citizen needs.
In this this article let’s now discuss Public Procurement Regulatory Framework in India.
Keywords
Public Procurement; Legal and Regulatory Framework, GFR, Transparency, Accountability, Good Governance.
Introduction
Public Procurement refers to the Purchase by Governments and State-Owned Enterprises of Goods, Services and Works. The goal of Public Procurement is to award Timely and Cost-effective contracts to Qualified Contractors, Suppliers and Service Providers for the provision of goods, work and services to support government and public services operations, in accordance with Principles and Procedures established in the Public Procurement Rules & Guidelines. These Rules Govern the way public authorities and certain public utility operators purchase goods, works and services. Procurement of goods and services is carried out by various ministries, departments, municipal and other local bodies, statutory corporations and public undertakings both at the Centre and at the State level.
Examples of public procurement may include buying computers for a police station, providing water, gas and electricity to people, and building a hospital or a road.
The average share of public procurement to GDP is over 14 percent in high accountability countries, 13 percent in medium accountability countries and less than 12 percent in low accountability countries. European countries tend to have a large share of public procurement in GDP: 25 percent in Switzerland, 20 percent in the Netherlands, 19 percent in Finland, and 16.5 percent in Sweden, for example. So do a number of large emerging economies: Brazil, Egypt, India, Pakistan, South Africa, Turkey and Vietnam all procure over 20 percent of GDP. The size of procurement expenditure in these groups of countries reflects a larger engagement by the government in providing goods, services and works. Public Procurement amounted to $11 trillion out of global GDP of nearly $90 trillion in 2018.
United Nations Convention against Corruption
The United Nations Convention against Corruption (UNCAC) came into force on 14th of December 2005. It is the first global anti-corruption instrument that urges States Parties to create legal and policy frameworks in accordance with globally accepted standards and to create an international regime to effectively tackle corruption. Recognizing the importance of procurement in every country and its vulnerability to corruption, the UNCAC contains a specific article i.e. article 9: Public procurement and the management of public finances.
Text of this article is as follows:-
Article 9:
1. Each State Party shall, in accordance with the fundamental principles of its legal system, take the necessary steps to establish appropriate systems of procurement, based on transparency, competition and objective criteria in decision making, that are effective inter alia, in preventing corruption. Such systems which may take into account appropriate threshold values in their application, shall address, inter alia:
A) The public distribution of information relating to procurement procedures and contracts, including information on invitations to tender and relevant or pertinent information on the award of contracts, allowing potential tenderers sufficient time to prepare and submit their tenders.
B) The establishment, in advance, of conditions for participation including selection and award criteria and tendering rules, and their publication.
C) The use of objective and predetermined criteria for public procurement decisions, in order to facilitate the subsequent verification of the correct application of the rules or procedures.
D) An effective system of domestic review, including an effective system of appeal, to ensure legal recourse and remedies in the event that the rules or procedures established pursuant to this paragraph are not followed.
E) Where appropriate, measures to regulate matters regarding personnel responsible for procurement, such as declaration of interest in particular public procurements, screening procedures and training requirements.
2. Each State Party shall, in accordance with the fundamental principles of its legal system, take appropriate measures to promote transparency and accountability in the management of public finances. Such measures shall encompass, inter alia:
A) Procedures for the adoption of the National Budget
B) Timely Reporting on Revenue and Expenditure
C) A System of Accounting and Auditing Standards and related oversight
D) Effective and efficient systems of Risk Management and Internal Control and where appropriate, corrective action in the case of failure to comply with the requirements established in this paragraph.
3. Each State Party shall take such civil and administrative measures as may be necessary, in accordance with the fundamental principles of its domestic law, to preserve the integrity of accounting books, records, financial statements of other documents related to public expenditure and revenue and to prevent the falsification of such documents.
Principle underlying India’s Public Procurement :
In India Procurement by the government accounts for around 30% of the GDP.
As public procurement accounts for a substantial portion of the taxpayers’ money, governments are expected to carry it out efficiently and with high standards of conduct in order to ensure high quality of service delivery and safeguard the public interest.
The principle underlying India’s public procurement regime is the acquisition of materials and services of specified quality at the most competitive prices, in a transparent and non-arbitrary manner. The public procurement regime comprises a framework of overlapping administrative Rules and Guidelines, Sector-Specific Manuals and State-Specific Legislation.
Legal and Regulatory Public Procurement Framework in India
The Legal and Regulatory Public Procurement Framework in India broadly comprises the following elements:
Constitutional Provisions: The Constitution of India under Article 282 provides for financial autonomy in public spending thereby authorizes 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, there are no further provisions that address any guidance on public procurement principles, policies, procedures or for grievance redress.
Nonetheless, various other procurement rules and policies provides comprehensive provisions for Public Procurement.
The General Financial Rules (GFRs) – 2017 are the general rules of Government of India (GOI) which are applicable to all Government Ministries / Departments. Exceptions are provided in the Rules. These rules were first introduced in 1947 and modified thereafter in 1963, 2005 and 2017.
Additionally, the Manual for Procurement of Goods, 2017 contains guidelines for the purchase of goods.
Public Procurement Bill 2012 : The Bill seeks to Regulate and ensure Transparency in Procurement by the Central Government with some Exemptions.
The Delegation of Financial Powers Rules, 1978 (“DFPR“) delegate the government’s financial powers to various ministries and subordinate authorities.
These are supplemented by Manuals and Policies Governing Procurement by Individual Ministries / Departments such as Defense and Railways.
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.
The Rules on procurement apply to all the contracts offered by government bodies at the central, state or local level like Public private partnership (PPP) contracts; Engineering procurement and construction (EPC) contracts; Concession Agreements; Operation and Management (O&M) Contracts etc.
Special Rules in Relation to Procurement in Specific Sectors or Areas
i. Defense: Governed by the Defense Procurement Procedure, 2016 (“DPP”) and the Defense Procurement Manual 2009 (as amended from time to time) which envisage various modes of procurement including indigenous, capital, local purchase, etc.
ii. Railways: Governed by a number of specific laws and uses the Indian Railway e-Procurement Systems (“IREPS”) for procurement.
iii. Energy: New Exploration Licensing Policy (“NELP”) under the Petroleum and Natural Gas Regulatory Act, 2006, provides for the evaluation of bids according to a quantitative bid evaluation criteria.
iv. Electronics: The Preference for Domestically Manufactured Electronic Products Policy (2013) applies to all ministries/departments (except the Ministry of Defense) for electronic product procurement for government purposes.
v. Electricity: Electricity Act, 2003 provides for the determination of tariffs through bidding processes by distribution licensees for the procurement of power.
vi. Telecoms: Guided by the National Digital Communications Policy – 2018.
vii. Renewables: The Ministry of New & Renewable Energy has released a National Policy on Biofuels and a Strategic Plan for New and Renewable Energy Sector. In 2017, the government issued guidelines for wind power procurement to enable the distribution licensees to procure wind power at competitive rates in a cost-effective manner.
viii. Micro, small and medium-sized enterprises (“MSMEs”): Under the Public Procurement Policy for Micro and Small Enterprises Order 2012, a minimum of 20% of annual value of goods/services of the Central Government and public sector undertakings (“PSUs”) must be procured from micro and small enterprises (with further reservation of 4% in favour of MSMEs owned by ‘backward classes’).
ix. Pharmaceuticals: Pharmaceutical Purchase Policy 2013 reserves the procurement of certain medicines from Central Public Sector Enterprises.
x. Government e-market (GeM) Platform: This more Transparent E-Platform Replaced Century old DGS&D
Other Relevant Laws to Public Procurement
Transparency, competition and curbing of probity issues is further ensured through:
i. Competition Act, 2002: Penalizes anti-competitive activities such as bid rigging, collusive bidding, cartelization, and abuse of dominance.
ii. Right to Information Act, 2005: Promotes transparency in government dealings by entitling Indian citizens to expeditiously procure information from the government through a “right to information” application.
iii. 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.
iv. Prevention of Corruption Act, 1988 and Prevention of Money Laundering Act, 2002 : Penalize bribery and money-laundering and provide for confiscation of property derived from money-laundering and other illicit activities.
Investigating Authorities
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.
State Specific Legislations:
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.
Ethics in Public Procurement
Ethics are a set of Moral Principles and Ground Rules that deem a person’s or organization’s behaviour as appropriate and Fair. The ground rules for Good Ethics in Public Procurement are: Professionalism with Integrity in Public Spending. Practices & Transparency, Impartiality and does Not Indulge in Unfair Practices, Avoid Conflicts of Interest and Personal Enrichment, Treat Suppliers Equally and Fairly, and Comply with Legal and other Obligations.
Ethical practice in procurement ensures Value for Money, Accountability to the Public, and Efficiency; Good Governance & Sustainability Goals as the primary drivers for Public Procurement practice in public.
Examples include the monitoring of unethical or illegal supplier business procedures and practices that can impact your organization’s procurement efficiency and reputation.
Good Governance
Good governance is the respect for the rule of law, openness, transparency and accountability to democratic institutions; fairness and equity in dealings with citizens, including mechanisms for consultation and participation; efficient, effective services; clear, transparent and applicable laws and regulations.
Responsibility, Accountability and Efficiency in the Public Procurement
India’s regulatory and institutional framework seeks 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.
This is evident in the GFR which declares that all authorities delegated with the financial powers of procuring goods in public interest will be responsible and accountable to ensure efficiency, economy and transparency, fair and equitable treatment of suppliers, and the promotion of competition in public procurement. To this end, specific measures have been set out under the GFR including requirements pertaining to contents of the bidding documents, description of the subject matter, quality and quantity specifications, preparation of an annual procurement plan by all ministries/departments, adherence to a code of integrity to address probity issues, etc.
Transparency in Public Procurement:
Transparency provisions enable processes and decisions to be monitored and reviewed, helps ensure that decision-makers can be held accountable and also helps open public procurement to more competition. Transparency needs to pervade all steps in the procurement cycle, from the earliest decisions on needs assessments, to the development of procurement plans and budget allocations, to bid evaluations, to implementing the contracts (and any contract amendments) and auditing performance.
Public Procurement Bill 2012 (Bill). The Bill has been introduced in the Parliament of India for the Legislature’s approval and derives its essence from the UNCITRAL Model Law of July 2011. It seeks to regulate public procurement to:
> ensure Transparency, Accountability and Probity in the process;
> ensure the Fair & Equitable Treatment of bidders;
> Promote Competition;
> enhance Efficiency and Economy;
> maintain Integrity and Public Confidence in the public procurement process.
The Bill covers procurements for goods, services, works, procurements by PPPs, special purpose vehicles (SPVs) for execution of contracts awarded through the procurement process, and others as notified by the Central Government.
Revised Guidelines on Public Procurement and Project Management
The Finance Ministry released revised guidelines on public procurement and project management – General Instructions on Procurement & Project Management; Dated 29th Oct’2021 (File No : F.1 / 1/2021 – PPD) which outline innovative Rules for Faster, Efficient and Transparent Execution of Projects. The guidelines also permit alternative methods for selection of contractors, which can improve speed and efficiency in execution of projects.
In appropriate cases, Quality Parameters can be given weightage during evaluation of the proposal in a transparent and fair manner, through a Quality cum Cost Based Selection (QCBS) as an alternative to the traditional L1 system
The formulation and release of these guidelines are part of the continuous process of review of existing rules and procedures.
Some of the improvements include prescribing strict timelines for payments when due. Timely release of ad hoc payments (70 per cent or more of bills raised) is expected to improve liquidity with the contractors, especially micro, small and medium enterprises (MSMEs), it added.
As part of the government’s digital thrust, electronic measurement books have been prescribed as a means of recording progress of works.
This system, along with other IT based solutions proposed in the guidelines, will help in realizing the dream of efficient Digital India, facilitate faster payments to contractors and reduce disputes.
Executing public projects on Time, within the approved Cost and with Good Quality has always been a challenge. As the pace of economic development steps up careful examination of procedures and rules is essential to ensure unwarranted roadblocks are removed and new innovations utilised for increasing value for money of the taxpayer.
The Central Vigilance Commission (CVC), the Comptroller & Auditor General (CAG) and the National Institution for Transforming India (NITI) Aayog had carried out detailed analysis of the procedures and rules for public procurement and project management and had suggested changes in strategies to meet challenges of present and future public procurement.
The draft of the guidelines was prepared under the aegis of the Central Vigilance Commission (CVC) after a detailed consultative process involving experts from various fields of public procurement and project management.
The Department of Expenditure (DoE), Ministry of Finance, was nominated to issue the guidelines after soliciting and detailed consideration of the comments of ministries/ departments.
Besides, Model Tender Documents (MTDs) for procurement of goods and non-consultancy services were also released as part of the continuous process of review of existing procedures.
MTDs specifically cater to needs relating to e-procurement thereby easing the process for adoption of e-procurement and furthering the ambition of convenient and efficient e-governance.
Such initiatives shall help in achieving the goal of Digital India by Easing and Standardizing the Digitization Process of public procurement.
These MTDs Rationalize and Simplify the Structure of Tender Documents. Besides aligning provisions with various procurement policies of the government, like policies related to micro and small enterprises, preference to Make in India and benefits to startups, MTDs incorporate national and international best practices.
The MTDs have been developed after a two-stage, extensive consultation with ministries / departments / central public sector undertakings, other organizations and individual experts.
Comments & Conclusion:
The principle underlying India’s public procurement regime is the acquisition of Goods and Services of specified Quantity & Quality at the most Competitive Prices, Delivered at Right Place at Right Time, in a Transparent and Non-arbitrary Manner. Despite many Provisions Regulating and Guiding the Public Procurement, there are many Lapses that opens up Opportunities to bypassing the provisions through Blind Spots.
There is no comprehensive central legislation exclusively governing all Public Procurement for the Federal Union, States, and Local Governments. Many State Governments have their own Legislations. Similarly, Ministries and Departments have their own Guidelines. Many a Times Provisions are bypassed or Payments are Deliberately Delayed on some pretext of Technicalities.
Government Procurement Processes, no matter what the Nature of Spending, demands a high level of Transparency and Accountability through its purchasing of goods and services for Public Good Justifying the Spending of Tax-Payers Money.
However, it is appreciated that the union Government is Continuously thriving for Improvements in Public Procurement.
References
1. General Financial Rules (GFRs) – 2017; Available @
https://doe.gov.in/sites/default/files/GFR2017 _0.pdf
2. Manual for Procurement of Goods, 2017; Available @ https://doe.gov.in/sites/default/files/Manual%20for%20Procurement%20of%20Goods%202017_0_0.pdf
3. The Office of Government Procurement: etenders.gov.ie,
4. Strategy for New India @75 NITI AaYog
5. Public Procurement Reform for Ease in Doing Business https://journals.sagepub.com/doi/full/10.1177/0019556119829578
6. Determinants of Ethical Procurement Practices in Public Entities by Ebenezer Essilfie-Baiden African Journal of Procurement, Logistics & Supply Chain Management: AJPLSCM Vol. 1, Issue 3, Page: 73-80, March 2020
Author Bio
