This article is written by Amarnath Simha, from Certificate Course in Government Contracts, Tender Management and Regulations from LawSikho.
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The Government of India is one of the biggest customers of goods and services in the country. By some estimates, around 15-20% of the government revenues are spent on the purchases of goods and services by the Government of India and the process is called procurement. However, the government is not free to do whatever it wants by purchasing whatever amount of goods and services at whatever prices and from any and every person. In this, the government is different from a private person who is entitled to do all those things. The government has to follow certain procedures which are mandated by law and these procedures are not easy and they are time-consuming compared to purchases by a private party.
How does the government contract bidding work?
The government has formulated certain rules and procedures for procuring goods and services. The government has formulated the General Financial Rules, 2017 through the Ministry of Finance (Department of Expenditure). The Department of Expenditure has also formulated the Manual for Procurement of Goods, 2017 and the Manual for Procurement of Services, 2017.
The Government contract bidding work begins with a procurement cycle through the cycle of activities happening. The activities are:
- Need assessment: The departments have to make a case for the need of those goods and services.
- Approvals: That need assessment will have to get approvals as the departmental manuals.
- Bid invitation: After the approvals, the bid documents are prepared and bids are called for.
- Bid evaluation: After the bids are received, the same are evaluated and after the same, a particular bid is held to be successful.
- Contract execution: A contract is executed in favour of the successful bidder.
- Performance of the contract and scrap disposal: The contract is performed by the delivery of goods or services. In case there is delivery of goods, disposal of the scrap will also be involved.
After the cycle of the above activities, for new goods or services, a procurement cycle is again started.
The General Financial Rules 2017 contemplates two portals of the government through which the majority of the procurement takes place except for those demanding confidentiality involving security or strategic considerations. The two portals are gem.gov.in and eprocure.gov.in. gem.gov.in is a Government e-marketplace providing vide rule 149 of the General Financial Rules, 2017. This rule mandates the Directorate General of Supplies and Goods which is the principal Central government purchase organization to host an online Government e-Marketplace (GeM). The procurement of goods and services by ministries or departments is made mandatory for goods or services available on GeM. The credentials of suppliers on GeM are to be certified by the Directorate General of Supplies and Gods and the reasonability of rates will have to be certified by the procuring authorities. Rule 160 of the General Financial Rules, 2017 makes it mandatory for Ministries/Departments to receive all bids through e-procurement portals in respect of all procurements. Hence, all government contract bidding work happens through these two portals.
Rule 158 of the General Financial Rules, 2017 gives the standard method of obtaining bids. They are:
- Advertised Tender Enquiry: Subject to exceptions, Rule 161 of the General Financial Rules, 2017 states that any procurement above Rs. 25 lakhs should be advertised through the notice inviting tender on the eprocure.gov.in portal and on gem.gov.in portal. There is a mandate to publish the bidding documents also.
- Limited Tender Enquiry: This is allowed for bids upto Rs. 25 lakhs wherein a registered list of suppliers are only sent notice inviting tenders and the tenders are not open to anybody and the award is given to successful bid amongst those suppliers (vide rule 151). The rule also gives circumstances wherein the limited tender enquiry can be done in case of bids exceeding Rs. 25 lakhs.
- Two-Stage Bidding: In many cases wherein the nature of goods or works are extremely technically oriented and are of a complex nature or requires inputs from the bidders for proper installation and functioning, then the two-stage bidding is adopted. Two separate bids are made i.e., the technical and the financial bid. The technical bid is usually opened first to find out the capacity and experience of the bidder to successfully perform the contract if awarded to the said bidder. The bidding documents usually will contain details of technical requirements and experience which have to be proved by the bidder. Only those bidders’ financial bids are opened who are successful in passing through the technical bidding. Amongst them, the most beneficial bid to the government is usually selected.
- Single Tender Enquiry: Usually adopted if only the supplier is handling the particular goods or works. Sometimes it is used in emergencies for which reasons have to be recorded.
- Electronic Reverse Auctions: If the government feels it is better to allow online real time auctions to get the best possible deal for the government, it goes for e-reverse auctions. In this, each bidder will know the quotation of the other bidders and is given a chance within a specified time frame to give a better or lower financial bid. Hence, in this way, the government is going to get the best financial deal possible.
Usually, a bid security is required to be offered by any bidder so that the government is giving room only for those bidders who are serious in the contract bidding. After the contract is awarded, the bidder is supposed to offer a performance guarantee, so that the government is assured of his commitment to fulfill the obligations of the contract awarded to him.
How long does it take to win a government contract?
Rule 161 states that ordinarily three weeks time has to be given for submission of bids from the date of publishing bidding documents and four weeks if foreign bids are being allowed. After the bid is published on the portal, the downloading of the bid documents has to be allowed. After the bid submission start date has to be mentioned and the bid submission end date has to be mentioned. In between, before the bid submission start date, sometimes clarification is also called for or required by the bidders. After the end of the bid submission end date, the technical bid opening date is given on which the technical bids are opened. At least one day’s gap is given between the technical bid opening date and the financial bid opening date. After the financial bid is opened and a bidder is found successful, the bidder is given the contract. Usually, the whole process would be over within 45 days.
How does contract bidding help a company’s financial outcome?
The government contracts are a major source of revenue for companies which are dealing with goods and services required by the government. If a company is successful in getting the tenders, then it would mean that the government has approved the company in technical bids and hence by inference of their capacity and experience. It would also mean that they are successfully carrying out the work and are not blacklisted. Hence, it is becoming a symbol of efficiency for the company and acts as advertising for the company. Many tenders involving goods and services run into hundreds of crores of rupees and hence their financial outcome will definitely be good.
What is the competitive bidding process?
The government, as noted above, to get the best possible deal for the government will go for a two-stage process and may also include the reverse bidding process. Hence, for any person to get the successful bid, he will have to show that he is giving the best material at the best possible price.
Risks associated with bidding in government contracts
There are many risks associated with bidding in government contracts. Some of them are:
- Underquoting: a bidder may under quote only to get the tender and may find it difficult to perform the contract when awarded. Hence, the government is without the necessary goods and services while the bidder may be liable to be blacklisted for all future bidding.
- Ambiguous bidding documents: especially in case of technical bids wherein the technical specifications and experience can be modified to benefit a few bidders.
- Right quality: in the process of getting the goods at the least possible price, the quality may be hampered. Hence the technical specifications need to be clearly stated in the bidding documents.
- Court intervention: if there is any unresolved ambiguity in the bid documents or if the bidding is not fair, then the whole process would be subject to court intervention. It may also be open to internal investigations through independent external monitors or through external investigations through the Central Vigilance Commissioner. These would often derail the requirements of the government departments itself and hamper their work. Hence the entire bidding process has to be smooth.
- In case of services and consultancy, the technical specifications tend to be difficult to be stated with certainty. Hence, word of mouth reference is allowed in consultancy. Hence, skill and talent is more difficult to be assessed than the specifications of the goods required.
The government contract bidding work carries inherent risks to the government on many fronts. But with many measures like the procurement portals and making the bidding as smooth as possible and with authorities like the Central Vigilance Commissioner being active, the government contract bidding is getting more transparent and more effective.
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