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This article is written by Shivank Datta, pursuing Diploma in Business Laws for In House Counsels from Lawsikho.

Introduction

The Government of India spends a lot of money towards procurement of goods and services as it is one of the most important activities of the government. The government undertakes procurement of a wide variety of goods and services and execution of works in furtherance of its economic activities. These activities are carried out by the government by inviting bids on the tenders offered/floated by it. The government, unlike private parties, does not enjoy absolute freedom in the process of procurement of goods and services and has to maintain a strict level of transparency as expenditure of public money is involved. The government, however, enjoys some level of discretion, but the same is subject to certain procedural requirements.

The government keeps up with the level of transparency in procurement of goods and services with the objective of giving a chance to the public to provide for such goods and services in advancement of business activities and economic growth. This is the primary reason that the entire procurement process is available in the public domain. Majority of the tenders floated by the government are accessible on public domain such as “Central Public Procurement Portal”, “Government e-Marketplace”, websites of government ministries and newspapers. 

In order to ensure that the procurement process is transparent, uniform, efficient, cost-effective and equitable, the process is subject to certain rules and regulations that have to be followed. The procurement process, in India, is governed by Article 299 of the Constitution of India by which the government derives its right to enter into a contract. The Constitution also enshrines fundamental right to carry on a trade or profession as per Article 19(1)(g) which consequently has an implication on the procurement process.

Other major legislation such as the Indian Contract Act, 1872, the Sale of Goods Act, 1930, Arbitration and Conciliation Act, 2019, Competition Act, 2002 are consequential in the public procurement system. Thereafter, the administrative guidelines in the form of General Financial Rules, 2017 (hereinafter referred to as “GFR”), Manual for Procurement of Goods, 2017 and Manual for Procurement of Consultancy and Other Services, 2017 were introduced by the government that provide the framework for the system of public procurement. 

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The public procurement system is also subject to judicial review, but only under rare situations or if the process is arbitrary and in violation of Article 14 or the fundamental principles of the Constitution. The Supreme Court in Meerut Development Authority v. Association of Management Studies and Anr., (2009) 6 SCC 17 observed that ‘the terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. However, a limited judicial review may be available in cases where it is established that the terms of the invitation to tender were so tailor-made to suit the convenience of any particular person with a view to eliminate all others from participating in the bidding process.’ Further in TATA Cellular v. Union of India, (1994) 6 SCC 651, it was observed that the judicial review of administrative action can be done on the ground of illegality, irrationality and procedural impropriety.

What is a tender document?

A tender is nothing but an invitation to offer wherein the government, by way of a tender, invites offer from private entities in the form of a bid to supply goods and services to the government. In order to do that, the government floats a tender document stating its requirements, the manner or modes of applying and the qualifications criteria for such tender. Thereafter, the bids are invited from public entities through an elaborate and transparent process. After satisfaction of the requirements of the tender document, evaluation of the bids and the completion of the bidding process, the government offers a contract to the eligible bidder i.e. supplier. In the public procurement system, usually the prospective bidder is chosen according to the lowest bid submitted. This is of course not the sole criteria for choosing the bidder, but it is surely an important one. The lowest bidder or the chosen prospective bidder is also called as the “L1” bidder. The entire procurement cycle beginning from the floating of the tender to the selection of the L1 bidder depends on the kind of tendering process chosen which in turn determines the stages involved in the process.

Kinds of tenders & Stages of bidding process

Kinds of tenders

There are mainly three types of tender documents. They are as follows:

  • Limited Tender

Limited Tender is the type of tender which is available to only a limited number of bidders and not to the public at large. The government, for the purpose of procurement of certain goods and services is permitted to float a limited tender according to GFR, wherein it invites bids from only a limited number of suppliers who are generally the prospective bidders with known credentials. According to Rule 162 of the GFR, this method is adopted when the estimated value of the goods is up to rupees twenty-five lakhs (Rs. 25,00,000/-) and the estimated value for a contract for work is up to rupees five lakhs (Rs. 5,00,000/-). Here, the government sends the Notice Inviting Tender (hereinafter referred to as ”NIT”) to prospective bidders. In this kind of bidding minimum three bidders are chosen who are already empanelled with the government department by way of email or registered post. 

  • Open Tender

In cases wherein, the government wants to procure goods and services in which the estimated value of the goods is more than rupees twenty-five lakhs (Rs. 25,00,000/-)  and the estimated value for a contract for work is more than rupees five lakhs (Rs. 5,00,000/-), it has to mandatorily float an open tender. An open tender has to be properly advertised and has to be available on the online portals in order to be available to the public at large to participate in the bidding process.  

  • Global Tender

In a global tender, foreign entities and players are allowed to take part in the bidding process. If the estimated amount of government contract is more than rupees two hundred crore (Rs. 20,00,00,000/-), then the goods and services can be procured by floating a global tender. The value of rupees two hundred crore for global tenders was recently announced by the Finance Minister under the initiative of Self–Reliant India. 

Key terms in a tender document

The terms of a tender document plays an integral part of the bidding process thereby providing the elaborate details of the floated tender in order to appraise the potential bidders as to the requirements of the tender.  

  • Terms and Conditions

The terms and conditions of a bid document overlap with the essential terms of a contract in accordance with the Indian Contract Act, 1872. The terms and conditions specify the process and manner in which the bidding process will be conducted. Therefore, the terms and conditions in a tender document can be as basic as representation and warranties and as complex as technical qualification or an escalation clause for the future.

  • Required Documentation

The NIT specifies the documents that the bidders need to furnish in order to meet the requirement of the floated tender. The entire documentation aspect includes the deposit of Earnest Money Deposit (hereinafter referred to as ”EMD”) which is a type of security deposit wherein the bidder has to deposit around two to five percent (approx.) of the total bid amount. The deposit of EMD and submission of other required documents have to be done in a careful and cautious manner. If the bid documents are not submitted in the required manner then those bids are considered to be “non-responsive” bids which may lead to forfeiture of EMD and rejection of the bid.

  • Submission and evaluation on details

The submission and evaluation of the bids is dependent on the stage of the bidding process and is based on the technical and financial aspects. The method of evaluation of the bid is also mentioned in the bid document which states whether the bidding process will follow a Single stage bidding or Two-stage bidding.

Single stage bidding

In a single stage bidding, the bidders are required to place a ‘single bid’ specifying their qualification for participating in the bidding process. The qualifications are based on technical and financial aspects which have to be fulfilled by the bidders. In this stage, generally, the bidders are required to submit a ‘techno-financial’ bid for assessment of their technical and financial qualification.

Two stage bidding

In a two-stage bidding process, the technical and financial qualifications are evaluated separately. Generally, the bidders are required to submit documents relating to their technical qualifications. Subsequent to qualification in the first stage i.e. technical evaluation, the bidders are required to submit documents relevant to reflect their financial qualifications and capabilities. 

All the qualifications and the documents required for the same are mentioned in the tender document. The qualifications mentioned in the NIT must be necessarily fulfilled unless specified otherwise. The Central Vigilance Commission vide order no. 98/ORD/1 dated 4th September, 2003 emphasized that the price bids should be opened only for those vendors who were technically qualified by the department/organization and advised that the department/organization may issue necessary guidelines in this regard.

  • Rights of government entity

The rights of the government entity will be elaborately mentioned in the bidding process. The government usually gives itself certain rights relating to the bidding process through the bid document. Generally, the government entities specify that they will have a unilateral right to reject a bid. 

  • Scope and obligations of the bidder

A tender document clearly specifies the scope and obligations of the bidder during the bidding process and also for the procurement project as a whole. Here, the bidders have to ensure that they are in a position to fulfill the obligations that are expected to be performed. It is pertinent to look to fulfill these provisions in order to meet the requirements and expectation of the contract which they intend to enter into by way of the tender document.  

  • Eligibility criteria

The eligibility criteria is necessarily mentioned in the NIT and is dependent upon the discretion of the government. The eligibility criteria can be related to technical or financial aspects or prior experience, business structure. For example, a sole proprietorship may not be allowed to participate in the bidding process; a particular amount of annual turnover may be required; income tax returns filed; prior work experience on a similar government project may be required, etc.

However, certain exceptions to the fulfillment of the eligibility criteria are also provided. The Central government under the ‘Start up India’ initiative notified policy circular no. 1(2)(1)/2016-MA dated 10th March, 2016 by which it was clarified that Central ministries/departments/PSUs may relax the condition of prior turnover and prior experience in respect to Micro Small and Medium Enterprises in all public procurements subject to meeting of quality and technical specifications.

Therefore, the eligibility criteria is one of the consequential aspects for a bidder to qualify for the bidding process.

  • Timelines and schedule of evaluation

Generally, the bid document specifies a detailed time table wherein the timelines for the bid process are specified i.e. timelines stating when the bid will be open, when will it be closed, date of announcement of the lowest bid i.e. ‘L1 bidder’, date of awarding of the contract, etc.

  • Method of submission of bid

NIT specifies the mode or method of submission of the bid. The bid has to be submitted sometimes, through the online mode on the portal on which the particular tender was floated. Certain times the bid has to be submitted in the physical form wherein an envelope containing the bid and relevant documents has to be submitted to the procurement department of that government organization. Therefore, the mode of submission i.e. online or offline mode is specified in the bid document.

  • Draft of the contract

The draft of the contract is also attached to the bid document. The same is done so that the bidders are apprised of the terms and conditions of the contract for which they are submitting bids, the intention of the government behind the contract and the requirements, expectations and obligations that are sought from prospective bidders to maintain transparency in the bidding process.

Conclusion

The public procurement system is an integral part of the economic activities of the government where it has to maintain transparency and due procedure of law. The Supreme Court in Nagar Nigam, Meerut v. Al Faheem Meat Exporters Pvt. Ltd., (2006) 13 SCC 382 emphasized that all the public tenders should be in an open and transparent manner with adequate publicity. The bidding process must be diligently followed by the bidders, keeping in view the requirements and conditions of the floated tender and the contract that will be entered into. The prospective bidders must submit a bid after thoroughly examining the tender documents as the requirements mentioned in an NIT are strictly followed during the tendering/bidding process. 

The increased opportunities of public procurement and the various initiatives by the government is a mixed bag of opportunities both for the public as well as private sector. However, the parties taking part in the procurement process should be mindful of the challenges that come along the way of a bidding process in order to make use of the opportunities in their fullest potential.

References

  1. Available at https://doe.gov.in/sites/default/files/GFR2017_0.pdf (last accessed on August 20,2020)
  2. Available at https://doe.gov.in/sites/default/files/Manual%20for%20Procurement%20of%20Goods%202017_0_0.pdf (last accessed on August 20,2020)
  3. Available at https://doe.gov.in/sites/default/files/Manual%20for%20Procurement%20of%20Consultancy%20and%20Other%20Services%202017_0.pdf (last accessed on August 20,2020)
  4. Available at https://doe.gov.in/sites/default/files/Amendment%20in%20General%20Financial%20Rules%202017%20-%20Global%20Tender%20Enquiry.pdf (last accessed on August 25, 2020)
  5. Available at https://cvc.gov.in/sites/default/files/ord44903.pdf (last accessed on August 25, 2020)
  6. Available at http://dcmsme.gov.in/Office%20memorandom_10316.pdf (last accessed on August 26, 2020)

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