Abstract
Introduction
Public procurement constitutes an important activity of any government. According to an estimate, the total amount spent on procurement of goods, services and works by public authorities, all over the world, is about 15% of the GDP. Owing to the enormous size of public procurement, there is a huge scope for irregularities, both by the public servants as well as suppliers. Several countries, therefore, have institutionalised systems for Domestic Review (DR). A DR system enables the stakeholders to challenge a procurement process before the award stage.
Given the size of the Indian economy, the amount spent by the Union and state governments on public procurement every year would be a staggering $390 billion or ₹27.3 lakh crore. There is a propensity of public servants to indulge in corruption and also of the contractors/suppliers/service providers to collude among themselves. As a result, public procurement in both developed and developing countries is hugely regulated and extremely process driven. However, despite so many checks and balances as well as the existence of a plethora of regulatory and judicial bodies to oversee public procurement, corruption scandals in public procurement are rampant even in countries like Switzerland, Germany, France, UK and the USA, where public institutions and judiciary are quite evolved and independent, and public servants are also reasonably well paid. In the last two years, about 100 corruption cases in road construction/repair contracts have come to light in Switzerland, despite the country being ranked third on the Corruption Perceptions Index 2017. In countries with economies of the size of India, namely USA, France, Russia, Brazil, and others, the number of corruption cases relating to public procurement is huge. Not much data on corruption cases in public procurement in the People’s Republic of China (PRC) is available, but it is assumed that the numbers would be large. China has centralised public procurement agencies at the federal and provincial levels which make procurement on behalf of all other public agencies.
Public Procurement in India
At the level of central government, procurement of goods, services and works is guided by the General Financial Rules (GFRs). The GFRs 2005 have recently been replaced by the GFRs 2017, which have served to not only enhance the financial ceilings for direct and L1 (lowest bidder) purchases but has also simplified procurement processes to an extent and enabled procurement entities to purchase on Government eMarketplace (GeM), which has been hailed as the most significant public procurement reform in Independent India.
The GFRs also mandate procurement of certain reserved items only from Khadi Village Industries Commission (KVIC) as well as micro and small enterprises under the Micro, Small, and Medium Enterprises (MSMEs) Development Act, 2006. To promote domestic manufacturing or value addition, the GFRs also prescribe preferential purchase of items having a specified percentage of domestic content.
In the states, public procurement is governed by their own financial/procurement Acts/Rules/GRs. These public procurement regulations are based more or less on the same principles as the GFRs of the central government, with differences just in the various financial thresholds for direct or L1 or open tender purchase as well as a list of reserved items. Several state governments have reserved certain items to be sourced only from MSME or cooperative societies or jails and so on, to support such sectors/entities.
The procurement by both Public Sector Undertakings (PSUs)—Central Public Sector Undertakings (CPSUs) and state PSUs—as well as autonomous and local bodies is also governed on the principles of transparency, predictability and accountability.
Domestic Review
One of the fundamental checks in any public procurement system across the world is that of review. A review system enables the stakeholders to challenge the procurement process before the award stage. An independent and transparent review system is one of the fundamental requirements prescribed under the Government Procurement Agreement (GPA) of the World Trade Organization (WTO). In India, the review system works through the Secretary/Minister of the concerned department/ministry, Independent External Monitors (IEMs), Prime Minister’s Office (PMO), VIP references, Central Vigilance Commission (CVC), Central Bureau of Investigation (CBI) as well as the judiciary. In case a stakeholder feels aggrieved by the terms and conditions prescribed in a tender or by the tender evaluation process, he can represent his grievance to the Secretary/Minister of the concerned department/ministry. He can also represent to the IEMs mentioned in the tender document to enforce the Integrity Pact (IP), the PMO, CVC or CBI, with a request to address his grievance, stalling the tender process, pending disposal of his grievance. With the availability of online grievance redressal portals such as Centralized Public Grievance Redress and Monitoring System (CPGRAMS), PMO Public Grievance (PG) portal, ministry/department websites, CVC Whistleblower online complaint filing system and so on, addressing/approaching all these agencies is much easier. Besides, a civil suit can also be brought in a Civil Court as well as a writ petition under Article 226/227 in the High Court of adjudication.
The process of handling a PMOPG or a CPGRAMS or a complaint/grievance/petition addressed to the Secretary or the Minister of the concerned department/ministry or even the head of the organisation is by calling for a report, which is ultimately taken from the very officer who is handling the procurement matter which is under scrutiny. The grievance/petition is closed from the grievance account of the department/ministry as soon as a response is sent to the complainant/petitioner. There is no consideration of the quality of response or whether the complainant/petitioner is satisfied with the response rendered. In case the complainant/petitioner is perseverant and is not satisfied with the response received, s/he can choose to use the same forum again to appeal to the higher authority. Generally, 30 days is taken by departments/ministries to respond to PMOPG Portal or CPGRAMS grievances; a tender, however, would be finalised much before that period. In case of petitions addressed to the CVC, the general practice is again to call for a report from the concerned ministry/department; there is no timeline prescribed, unless the CVC, considering the importance of the matter, specifies so.
As per the guidelines issued by the Department of Expenditure, Ministry of Finance and by the CVC, every government organisation needs to define a monetary threshold beyond which the Integrity Pact (IP) shall be mandatory in their tenders. The IP essentially envisages an agreement between the prospective vendors/bidders and the buyer, committing the persons/officials on both sides, not to resort to any corrupt practices in any aspect/stage of the contract. Every bidder is required to mandatorily sign the IP to participate in a tender. The IEMs are appointed from among the panel of eminent persons maintained by the CVC and based on its recommendations. The role of IEMs is not legally binding on the government organisation but is to just examine the integrity of the bidding process and ensure that the entire process is unbiased and not loaded in favour of a particular bidder. In practice, several government organisations have notified very high threshold values for tenders mandating the signing of IP. Also, given the fact that most of the IEMs are retired bureaucrats, their response to bidder concerns is no different from that of serving officials. Also, without any direct power to issue restraining orders to stop the entire procurement process, the effectiveness of IEMs is severely curtailed. In the absence of serious monitoring of the IP and IEM system by the CVC or any other watchdog, the compliance by government departments (compliance by PSUs is better) remains low.
In case of judicial intervention, the court may grant a stay on the procurement process but given the huge pendency of cases that the lower and higher judiciary is grappling with, a time-bound relief from the court of law is purely a matter of chance. Besides, the process of seeking judicial interference is expensive, and, as a result, stakeholders who participate in tenders of small or medium value, seldom find value in approaching the courts.
As a result, these traditional modes of review of a procurement process are generally ineffective and tardy, mainly because they are not specialised and were never designed for review of a procurement process. In the absence of will/power to issue restraining orders on the procurement process, it is seen that, in most of the cases, the contract is awarded much before the petition is taken into cognizance or finally addressed by the concerned authorities.
Global Best Practices in Review of Procurement Process
As per the GPA of WTO, DR is a procedure for an independent, speedy review of procurement decisions where a potential supplier believes that s/he has been unfairly treated in a contracting process. DR is considered to be a relatively low-cost means of ensuring systemic integrity and correcting errors in the procurement process. Under GPA, DR can be conducted by an administrative or judicial authority. The challenges can be heard initially by bodies such as the agency head and appeal can lie with the independent administrative or judicial body. The United Nations Commission on International Trade Law (UNCITRAL) Model also provides for a hearing of the challenge by the procuring entity as the first stage of DR. Review bodies that are not judicial are required to be subject to judicial review. GPA suggests a 10-day rule for appeal, beyond which the party shall lose the right to challenge the cause for action.
European Union: Fifteen EU members have specialist review bodies. These bodies backed by clear rules, are better resourced, have specialised expertise and are designed to handle procurement related matters. The EU member states also prescribe clear timelines for completing the DR proceedings.
Denmark: DR is done through a specialised body comprising of ten professional judges of High Court level and twenty expert members, generally engineers. The fee charged for each case ranges from €133 to €2,666. In case any irregularity is established, charges cannot be levied on the contracting entity. However, in case the complainant fails to prove the charges, a small cost can be levied on him. The average time taken for proceedings is 200 days.
Slovenia: There is a National Review Commission (NRC) for reviewing public procurement award procedures. NRC can neither hear cases after the contract is awarded nor can levy damages. There is no appeal against the orders issued by NRC. The five members of the NRC are appointed by the Parliament; the President of the NRC and two members are legally qualified and the other two are procurement professionals. A notice fee of €2,000 is charged by the NRC. A time limit of 20 days for hearing, plus 15 days for drafting orders is prescribed. An extension of a maximum of 15 days can be provided. The average time taken by the NRC for issuing orders is 13.5 days.
The USA: The US Challenge Regime is three-pronged, namely the procuring agency, Courts and Government Accountability Office (GAO). It is a no exhaustion system and any of these three agencies can be approached in any order. Earlier, only the standalone procurements could be challenged. However, recently, Framework Agreements (equivalent to Rate Contracts in India) have also been made challengeable in the USA.
The most common reasons for the challenge are unreasonable technical/financial evaluation or past performance criteria or inadequate documentation of record or a flawed selection decision.
The first port of call for exercising the judicial option is the US Court of Federal Claims, Washington DC. This option is expensive and, as this Court does not have specialised knowledge on procurement, it is difficult to get a temporary restraining order or a preliminary injunction. Also, the orders issued by this court are not consistent and hence predictability of outcome is an issue. As a result, this option is not a very popular one and hence the total volume of cases handled annually is less than 100.
The most popular option in the USA is the GAO. This is a unique forum, before is quasi-judicial, efficient, low cost (a filing fee of $350 has just been introduced), transparent and predictable. Also, owing to a high degree of professionalism, its orders are relied on by legislators, courts, contracting agencies as well as the public.
The protest notice should be received by the GAO within 10 days of award; any delay beyond this period is considered to be a waiver. As soon as the protest application is received by the GAO, the procurement process, at whatever stage it might be, stops. Immediately after a protest is filed, the procuring agency has to mandatorily produce before the GAO all the documents relating to that procurement. It is the first task for the GAO to check whether the procuring agency is doing what it had declared in advance. The GAO has 100 days to decide a case and experience shows that GAO generally never misses this 100-day deadline. The GAO handles close to 2,400–2,800 protests per annum for federal procurements.
In case a contract is already awarded and the GAO order goes in favour of the complainant, the contract clause ‘Termination for the Convenience of the Government’ is invoked and the cost incurred by the contracting party till the termination date is reimbursed.
The GAO orders can be challenged if the Highest Contracting Authority submits that the performance of the awarded contract is in the best interests of the government. Such an overriding order can then be challenged in the Court of Law.
Lessons for India
As discussed above, a system for administrative and judicial review of the procurement process does exist in India. However, the administrative review is quite ineffective mainly owing to the following reasons:
It is not purely independent, as most of the time, the report is submitted by the procuring entity itself which has all the reasons to justify its decisions. It is rare that an independent inquiry is done, either at the behest of CVC or by the CBI (upon registration of an FIR under Prevention of Corruption Act) or by the statutory auditor, namely, Comptroller and Auditor General of India. No time limit is prescribed for any of the administrative agencies and most of the time the contract is awarded or even executed before the final order is issued. It is rare that an awarded contract is set aside and re-awarded to the complainant. None of the administrative agencies are specialised in procurement matters. CVC handles a large number of corruption cases and, although it has officers with procurement background, it does not conduct independent inquiries and also its mandate is to punish errant public servants, and generally not issue orders on the procurement matter. A complaint made before the CVC lands on the desk of the same officers for comments, who have made the procurement decision in the matter. Getting a final order from the CVC on any matter is a long-drawn process. The quality of orders issued by the administrative bodies on review applications can at best be graded as mediocre. There is no mechanism in the government to review the quality of responses given on the PG portal or for VIP references. Also, no institutionalised mechanism exists to check whether the complainant was satisfied with the response received or not. The IP system rests on the competence of the IEMs who come from the same bureaucratic family and have a tendency to cause minimum inconvenience to their employers, namely, the procuring entity.
Considering the size of the US economy and the successful functioning of the GAO, it is felt that a similar quasi-judicial entity can also work for a country like India. A GAO-like entity would have to be created through legislation, both at the central and state levels. As in the USA, it should operate as part of a no exhaustion system and the petitioner should have the right to approach either the judiciary or this GAO-like entity in any order. This would also be in sync with the existing system in India, where the administrative agencies and the judiciary can be approached in any sequence.
The most important factor for the success or failure of this GAO-like entity depends on three factors:
Appointment of members with the right skills, that is, a mix of members with legal/judicial background and those having proven technical skills and wide experience in procurement of goods, services and works. It would add value to this body if a few members also belong to the industry, who as participants in the government procurement process have a better understanding of not only the public procurement process but also collusion, cartelisation, and so on.
Provide no exception to the prescribed timeframe for disposal of cases. The timeframe should be a part of the enactment and should provide no loophole to bypass it. This would help avoid the pitfall of stalling important public procurements by creating a new entity for DR.
The entity should have enough teeth to call for all procurement-related documents from the procuring entity and also enforce the orders issued.
The orders issued by this entity should be challenged only in the High Court of adjudication.
As in the USA, the success or failure of such an entity would depend on the quality of orders issued by it. As has been seen in the case of the CAT or Competition Commission, the trust that such bodies enjoy is directly proportional to the quality of its members and whether the government is interested to keep them laden with an adequate number of quality resources. The best way to kill any such tribunal/entity is to fill them with mediocrity and cut their resources, both financial and human.
By having reformed and e-enabled public procurement in the central government (also adopted by several state governments) through GeM, the government has made it extremely easy for vendors/service providers to do business with the government agencies, has speeded up and demystified the entire procurement process, besides offering a single platform for both pre-contract and postcontract management. Notwithstanding the paradigm shift in public procurement, the GeM system, unfortunately, suffers from the same malaise which any traditional procurement system suffers from, that is, lack of a credible review system.
The most evident advantage that the creation of a GAO-like system offers is to ensure that the executive does not make bona fide or mala fide mistakes while procuring goods, services and works. According to an estimate, such bona fide and mala fide mistakes cost the public exchequer close to 30% of the procurement budget, that is, $2.85 trillion, across the world. The figures for India would be no different in percentage terms. With the availability of a quick review mechanism, the procuring entities would like to make themselves very sure before initiating any procurement and refrain from making a decision that would be viewed adversely by the review system.
Footnotes
The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The author received no financial support for the research, authorship and/or publication of this article.