This article has been written by Gauransh Vyas pursuing the Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. This article has been edited by Dhruv Shah (Associate, Lawsikho) and Dipshi Swara (Senior Associate, Lawsikho).
A tender is an offer in writing to the contractors/suppliers to execute some specified work or supply some material within a fixed time frame. A tender document which is also called Request for Tender (RTF) contains the quantity which has to be supplied, specifications of the work to be carried out, time frame in which the work has to be completed, conditions of contract, plans and drawings. Many a time, we see Request for Tenders (RTF) in newspapers, it may be for construction work, engineering or the supply of some specific goods. The interested parties to the RTF submit their bids and the most attractive bid gets selected and awarded with the tender. A tender document cannot be submitted as the Letter of acceptance (LOA) because it cannot bind a contractor to complete assigned work. This is the reason both parties sign a contract of tender which binds the contractor to complete the assigned work as per the terms of the contract. It usually contains the same terms and conditions as in RTF.
What is tendering?
Tendering, in its simplest form, is the process by which an organization or an individual that needs certain types of goods/services invites interested parties to submit a proposal or bid to provide these goods/services. This invitation in a formal way is referred to as a Request for Tender (RFT). The organization that invites others to submit a proposal or a bid is called the buyer and the party that responds to the request is called the Supplier.
Example: Due to an increase in the number of students, Happy High School decided to build a new building and published a request for tender (RTF) in a daily Newspaper and for the same KCC construction company submitted a proposal. In this example, the school is the buyer and the construction company is the Supplier.
Importance of tendering
Tendering can be beneficial for both the buyer and the supplier if done in a proper manner. There is a great opportunity for the bidders to suggest innovative solutions by providing their expertise at a competitive price. And the buyers are also keen to take advantage of these opportunities as they can choose the best bid as per their needs at a cheaper price.
- In India, there are no particular laws for tenders. A tender is simplyan invitation to an offer. In response, one party signifies its willingness with a view to obtaining the assent of another party, the interested party submits an offer or perform the prerequisite conditions to participate in a tender which is considered as an offer to a contract under Section 2(a) of Indian Contract Act, 1972
- In the case of Meerut Development Authority vs. Association of Management Studies [(2009) 6 SCC 171] the Supreme Court considered a tender as an offer. A tender is something that invites and is communicated to notify acceptance of an invitation. It must be unconditional and in the proper form, the person by whom a tender is made should be able to perform and must have the willingness to perform his obligations.
- A contract of tender is governed just like other contracts by the Indian Contract Act, Code of Civil Procedure, Indian Arbitration and Conciliation Act, etc. When a contract specifies that Indian laws shall be applicable as relevant laws, even if the parties to the contracts are from different jurisdictions, only the laws of India shall apply.
- An Indian company entering into a contract of tender in a foreign country to execute a work in foreign must have to comply with the laws where work has to be done and the relevant laws that govern the contract as agreed by both the parties at the time of signing the contract.
- Furthermore, if all the parties to the contract choose laws of a third country as the applicable law then that law becomes relevant in that case. Also if the parties to the contract decide to resolve all future disputes as per the rules of any international Arbitration Center like ICA, ICC, SAIC, etc. then those rules also become relevant.
Governmental procurement laws and policies
- Governmental procurement in India is derived from the Indian Constitution. Article 53 of the Indian Constitution gives executive power of the Union of India to the president. The president by his order vests the financial power of the Union of India with the Finance Ministry. These powers are delegated to the subordinate authorities under General Financial Rules, 1947 which were revised in 2005 then again in the year 2017.
- All governmental procurement must follow the principles laid down in the General Financial Rules (GFR), 2017. The GFR outlined the procurement procedure, contract management, and financial management principles. Chapter 6 of GFR 2017 deals with procurement of goods and services and chapter 8 deals with contract management.
- There is no central legislation that governs governmental procurement and contract of tender in India. Each state and union territory has its own rules, guidelines, or legislation relating to government procurement and government procurement contracts, based on broader principles of GFR 2017.
- In India, we have only GFR 2017 and Delegation of Financial Powers Rules (DFPR) which deals with governmental procurement and government procurement contracts. A broader framework is also provided by Contract Act, 1972, the Sales of Goods Act, 1930, the Arbitration and Conciliation Act, 1996, the Limitation Act. 1963 and the Right to Information Act, 2005.
Judicial review of the contract of tender
An invitation to a tender cannot be open for judicial review. However, a limited judicial review may be available in case it is established that an invitation to tender is discriminatory or in favour of a particular party and made with a view to eliminating others from participating in the bidding process.
In the case of Michigan Rubber (India) Ltd vs. The State of Karnataka, the Supreme court had cleared circumstances under which a judicial review is warranted. The court laid down the following principles to be considered before any judicial scrutiny:
- Article 14 of the Indian constitution talks about equality before law, prohibition of discrimination and fairness in action by the State. Judicial review is only applied to the extent that the State must act in a fair manner and not for any ulterior motives.
- If the Government acts validly in awarding a contract by inviting tenders, the interference by courts shall be limited.
- In formulating conditions for tender documents and contracts of tender, greater freedom is required to be exercised by the state authorities unless the actions are found to be misused.
- Certain qualifications or preconditions for tenders have to be laid down to eliminate incompetent parties and to make sure that the parties responding to an invitation of the tender have the resources and capacity to successfully execute the work.
- If the State authorities act reasonably and in the interest of public good in awarding a contract of tender, the interference by the courts again shall be restrictive. To carry on business with the Government does not come under the ambit of fundamental rights and no person can claim under Article 19(1)(g).
Therefore, before interfering in a tender or a contract of tender a court must ask itself the following questions:
(if) Is the process or decision made by the authorities in favour of someone or made with mala fide intentions?
(ii) Is the process or decision made by the authorities so irrational and arbitrary that the court can construe that the concerned authority is not acting reasonably as per relevant laws?
(iii) Is public interest affected?
Most common types of tenders
- Open Tendering: It’s a process where an invitation to tender is put in the public domain like in the newspaper with all prerequisite conditions mentioned. The interested suppliers who are eligible are required to submit all required information and the tender awarded based on the selection criteria stated by the organization.
- Selective Tendering: A selective tendering is only open to a selective number of suppliers. The suppliers may be selected through an open tendering or the organization may select the supplier from the suppliers or businesses they have previously worked with.
- Multi-Stage Tendering: In multi-stage tendering, an organization selects a suitable supplier for specific work in a single project as per the contract requirement. It is used when there are a large number of respondents.
- Invited Tendering: In invited tendering, an organization itself invites a supplier to perform the contract. It is usually used in emergencies or when there is a need for specialist work.
E- Tendering process
E-tendering is another name for electronic tendering. It refers to the digital tendering process, handled by software. The manual tendering process can be long and time-consuming. Usually takes three months or more, which is costly for both the buyer and supplier. The E- tendering process is designed to speed up the tendering process and to ensure that the work to be done for the government or a private entity is done in a fair manner.
Steps involved in filling an e-tender
Step 1: The government authorities or organizations publish the tender advertisement on their e-tendering platforms. The entire details including eligibility criteria and prerequisite conditions are mentioned in the advertisement. Firstly check the eligibility and be prepared with all prerequisite conditions.
Step 2: For filling e-tender, the bidder must have a Class-III Digital signature certificate (DSC) in his name from a licensed Certifying Agency. Click here to see licensed Certifying Agencies.
Step 3: Bidders need to enroll themselves at the online tendering platform of the governmental agency or the organization that published Requests for Tender (RFT) to generate user ids and passwords.
Step 4: One needs to upload the requisite documents as mentioned in Request for Tender (RFT) and register the bids online.
Step 5: Mostly there is a payment gateway for e-tendering which a bidder has to pay. After the online payment, a bidder has to submit his bid candidacy before the last date.
Step 6: Finally, the bid results get published online on the portal of the organization.
How do contracts of tender work?
- A contract of tender is a contract between the buyer who publishes a Request for Tender (RTF) and the tenderer who is awarded the tender after examining his bid.
- In this contract, both the parties outline their expectations, general behaviour and the bounds on the relationship between them in a much more detailed manner than Request of Tender (RTF) such as a description of goods/services being provided, how and when the buyer is expected to pay, whether the contract is exclusive or not, what warranties, representative and guarantee are being provided, penalties for delay, etc. A contract of tender must have clauses for dispute resolution and governing laws in case anything goes south.
- A contract of tender becomes legally binding on the signing parties when it has been printed on non-judicial stamp paper or receives an e-stamp.
Stamp value on a contract of tender
- The value of stamp paper would depend upon the state in which it has to be executed. Each state and Union territory in India has different provisions with respect to the amount payable on these types of contracts.
- For example, Madhya Pradesh has its own Stamp duty Act The Indian Stamp (Madhya Pradesh Amendment) Act, 2016 and also has its Stamp duties as per the type, nature and monetary value of the specific agreement. Click here to see the Stamp duty chart of the State of Madhya Pradesh.
- Most of the major transactions in India happened in the State of Gujarat because of their low Stamp duties, registration charges and various attractive policies offered by the Gujarat State Government.
The important pointers of the article can be summarised in the following manner:-
- In India, there is no particular legislation that governs tendering. They are governed by the Indian Contract Act, the Code of Civil procedure Code, the Arbitration and conciliation Act, etc.
- All the government procurements must adhere to the principle laid down in General financial Rules 2017, prepared by the ministry of finance.
- In this new age of the digital era, e-tendering is widely used. As it speeds up the tendering process, reduces expenses and also ensures fairness. Now anyone from any part of the world can participate in the e-tendering process.
- A very restrictive judicial review of the contract of tender may be available when it is established that the terms of a tender are in favour of a particular bidder.
- A contract of tender becomes legally binding when it is printed on non-judicial stamp paper or e-stamp and signed by both parties. The value of stamp paper would depend upon the state in which it has to be executed.
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