Government contracts
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This article is written by Amarnath Simha, pursuing a Certificate Course in Government Contracts, Tender Management and Regulations from LawSikho.

Introduction

The government is one of the major consumers of goods and services. But this consumption has to be done through a process that is fair to all parties and most beneficial to the government because ultimately government’s money is public’s money and any wastage of government’s money and resources is a waste of public’s resources which is in effect a waste of everybody’s resources. Hence, apart from the Constitution, public procurement has to follow the mandate of laws framed for that purpose i.e., the General Financial Rules, 2017 and the Manual for Procurement of Goods, 2017 and Manual for Procurement of Services, 2017. The procedure has to be fair and open to all qualified bidders.

Can a single tender be accepted?

One of the modes of ensuring fairness is to get as much as qualified bidders to bid for a certain tender. This would ensure all the bidders who are interested will keep a watch over the tender process and hence the process will be under pressure to be fair. However, there may be times when a single bidder is called for the supply of goods or services. Rule 166 of the General Financial Rules, 2017 makes a provision for single tender enquiry. It gives three situations under which the single tender enquiry is possible. They are:

(i) only a particular tenderer is the manufacturer of the required goods; 

(ii) in cases of emergencies wherein the reasons are recorded and approvals received; and 

(iii) for standardization of spare parts or machinery to be compatible with the existing equipment. 

For all these, a Proprietary Article Certificate is required from the departments which seek to procure those goods. Hence, in this case also fairness is sought to be ensured and the government benefited.  

Risks associated with government contracts

In spite of the rules and the manual, there are many risks associated with public procurement. The Manual for Procurement of Goods, 2017 notes many of the risks involved with bidding in government contracts. Some of the risks are:

  1. Conflict of interest with members of the Trial Committee being interested in a particular bidder: the manual states that members of the trial committee should give an undertaking that they are not related to the bidders to overcome the risk. 
  2. Unwarranted rebidding: because all the bids are rejected on the pretext of high prices, changed specifications, non-availability of budget. The manual states that for rebidding a higher approval is required to take away the authority misuse by the authority.
  3. Sudden quality reduction/increase or splitting of quantity work at the time of award: the manual states that bid conditions must be clear as to the limits beyond which it cannot be split.
  4. Unwarranted negotiations: sometimes post-tender negotiations without justification are carried out for whatever reasons like seeking to unfairly award the bidder or reject the lowest acceptable bidder. The manual states that post-tender negotiations are not allowed unless there are exceptional circumstances. The Central Vigilance Commission guidelines bar post-tender negotiations.
  5. Unwarranted delays in finalizing the contract agreement or contract drafting in a manner to favor or disfavor a particular bidder. The manual states that the timelines for pre-announcing contract agreement are given and it must be said to be in accordance with bid documents already preannounced.  
  6. Anti-competitive practices or bid-rigging is said to be a practice which is prohibited and is defined as any collusion, bid-rigging or anti-competitive arrangement, or any other practice coming under the purview of the Competition Act, 2002, between two or more bidders, with or without the knowledge of the Procuring Entity, that may impair the transparency, fairness and the progress of the procurement process or to establish bid prices at artificial, non-competitive levels (3.2.2. (iii) of the Manual). Sometimes even the authorities may be involved in these practices.  Some of these practices are:
  • Bid coordination: The bidders coordinate to quote the same prices which are higher than the reasonable prices so that the tendering authority is forced to procure at higher prices.
  • Cover bidding: is where the other bids are so designed to support the successful bid in the guise of genuine competition.
  • Bid-suppression: the other bidders do not give final bids to support the leading bid-rigger.
  • Bid-rotation: conspiring bidders continue to bid but agree to rotate the winnings amongst themselves by one chosen person being allowed to bid the lowest.  This is the most common bid-rigging in India.
  • Market-allocation: competitors agree to carve up the area and agree not to compete for certain customers or certain geographical areas.  
  • Sub-contracting: though not mentioned in the manual, it is one of the modes of bid-rigging. A bigger bidder wins the contract and subcontracts with the non-winning bidder.

The manual states that the procurement officials will be in a position to detect these patterns and take such steps to prevent this. The manual states that these anti-competitive practices come under competition law for which there are stringent provisions under the same. The manual calls for regular training for the procurement officers and impositions of penalties under the competition law. The manual also calls for disbarring the tenders who indulge in bid-rigging (8.1.13).

Competition Act and Bid-rigging

The Competition Act, 2002 deals with anti-competitive agreements. Section 3(1) of the Act prohibits anti-competitive agreements and section 3(2) holds those anti-competitive agreements to be void. Anti-competitive agreements are those agreements that cause or are likely to cause an adverse appreciable effect on the competition with India in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services. The Act defines the agreement under section 2(b) as “agreement” includes any arrangement or understanding or action in concert,— (i) whether or not, such arrangement, understanding or action is formal or in writing; or (ii) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings.  Hence, it is not equivalent to the definition of a contract under the Indian Contract Act, 1872. The Act basically recognizes two kinds of agreements i.e., horizontal agreements and vertical agreements. Horizontal agreements are those which are concluded between the enterprises/businessmen which operate on the same market level and compete with each other.

For e.g., two PWD contractors. A group of PWD contractors who are in the business of farming roads in a particular area can form a cartel and determine the prices. A cartel is defined under section 2(c) to mean an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services. Vertical agreements are those agreements which are concluded between undertakings that operate on different levels of the manufacture and do not compete with each other. For e.g., a manufacturer and a distributor who are dependent on each other. Bid-rigging is a horizontal anti-competitive agreement.

Bid-rigging is defined in the explanation to section 3(d) as meaning any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding. Section 3(3) of the Act states that any agreement which directly or indirectly results in bid-rigging or collusive bidding shall be presumed to have an adverse appreciable effect on competition and thereby is prohibited and void. Hence, any bid-rigging in respect of public procurement is prohibited and is void.

An example of bid-rigging

In the case of Excel Crop Care Ltd vs. Competition Commission of India, AIR 2017 SC 401, four different bidders had over a few years had bid with identical prices in the tenders called by the Food Corporation of India and had uniformly boycotted a particular tender. The Competition Commission and as well as the Supreme Court found that there was collusion and a cartel formed as the geographical regions and cost of production of each of the tenderers were different and hence there could not have been an identical price quotation.  Hence penalties were imposed on the four tenderers.  

How does the government contract bidding work?

The government contract bidding work has now moved to online portals wherein most of the risks associated with placing bids have been minimized. Most of the contract bidding is now made as transparent as possible and steps are still taken to further make them as fair as possible.  

Conclusion

Even with government procurement becoming more transparent and fair, it is not only imperative for the procurer to be aware of these practices but also for any bidder to be aware of these practices. Firstly, to be aware of the law and not indulge in these practices only for the sake of bettering his business but also to be aware as to the steps which could be adopted to protect his interests by seeking to bring those bidders to law. Thus, even though it is not exactly a business requirement, a bidder has to be aware of these aspects before bidding.


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