CSIR purchase rules and procedure 2008 (Hindi)

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Public procurement needs an overarching framework to be fair

 

Public procurement is a multi-step process of established procedures to acquire goods, works and services by a government entity. It involves the full cycle through need assessments, process design and bid-document preparation to the awarding and execution of contracts and the final accounting and auditing of a completed contract.

Since public procurement forms a core part of a government programme, various international bodies - including the United Nations Commission for International Trade Law (Uncitral), World Bank (WB) and World Trade Organization (WTO) - have drafted laws, guidelines and agreements aimed at promoting the integrity of, and public confidence in, the procurement system.

The objective is to create a system founded on transparency, competition and objective criteria in decision-making that is effective in preventing corruption. They clearly spell out that the cornerstone principles of open, transparent and non-discriminatory procurement based on open competitive bidding are the best tools to achieve value for money and quality benefits as it optimises fair and equal competition.

Constituting a core area of public policy programming and implementation, government procurement and contracting in India forms 13% of the national budgets and over 20% of GDP as highlighted in the World Bank India Country Procurement Assessment Report, 2003. The ministry of finance, in 2005, drafted the General Financial Rules (GFR), wherein it formally established yardsticks of fairness, integrity and transparency through competition, efficiency and economy to achieve the best results in public procurement.

However, there is no national law exclusively governing the public procurement of goods. Public procurement is regulated through a series of executive directives, mainly instructive in nature. Instructions issued by the Central Vigilance Commission (CVC) also supplement the regulations. The practices are administered by government agencies, who may issue more detailed instructions in conformity with the GFR.

Recognising that government procurement constitutes a key area of public policy programming and intervention, the ruling party has flagged the issue of transparency in public procurement and contracts as part of its five-point action plan to tackle corruption.

An overarching framework will provide government agencies with a yardstick to review procurement norms and it would do well to take into consideration the following recommendations.

First, a public procurement law should be promulgated at the Centre and in each state to cover the objectives of government procurement, substantive procedural requirements to achieve them, debriefing of unsuccessful bidders, publication of contract awards, an appeal or challenge mechanism and post-award contract execution such as bid security, performance security, maintenance contract, advance payment, etc.

This should be complemented by a set of national regulations enshrining the five fundamental principles, namely, open tendering through effective advertisement; non-discriminatory tender conditions and technical specifications; public tender opening; bid evaluation based on pre-disclosed criteria and methodology; and selecting the most advantageous bidder without any negotiation on price or any other term.

The existing procedural framework governing procurement should be streamlined and an independent nodal agency or department should be created to deal with the policies, rules, practices and procedures. Also, there should be internal and external control and auditing bodies, the reports of which should be made accessible to the public.

Also, there should be provisions for institutionalising 'integrity pacts' or any other enforceable integrity condition as a legally-binding ethical code of conduct to govern the procurement cycle. This needs to be buttressed by provisions penalising violations of the pact's terms and conditions. The steps of decision-making on public procurement should be available for public scrutiny.

Platforms like public hearings should be provided for discussion of the procurement design, method and bid documents. At the same time, a social audit must be conducted by the procurement authority for large development projects to ensure accountability. Additionally, the procuring authority, as part of the debriefing procedure, should, upon request, communicate to a supplier or contractor the grounds for its rejection.

It is important that information be provided after the award of the contract on matters such as nature and quantity of products or services in the contract, name and address of the winning tender, value of the winning award and the highest and lowest offer taken into account in the awarding of the contract.

Besides, it should be highlighted in law that alternative methods of procurement such as direct contracting, single-source procurement, limited tendering, etc, can be adopted only where justified, fully explained, documented and, thus, available for public review.

If required, the procuring authority should hold negotiations with suppliers provided this is indicated in the initial tender notice or only when it appears from the tender evaluation that no single tender is the most advantageous, subject, of course, to safeguards ensuring that such negotiations do not discriminate between suppliers.

A domestic bid challenge system should be created, giving aggrieved suppliers a right of recourse to an independent quasi-judicial domestic tribunal like a public procurement tribunal, outside government control, to whom bidders can appeal an award decision.

Such an appeal or challenge mechanism must be time-bound and be applicable for contracts above a certain threshold. At the first stage, review may be sought from the procuring entity itself. Further, a review can be conducted by higher administrative organs of the government and, finally, a judicial review of the proceedings by a designated tribunal might be conducted wherein all suppliers or contractors are notified and are allowed to participate.

Lastly, the procuring authority should legalise e-procurement. Since corruption thrives in the absence of transparency, there should be an emphasis on facilitating information accessibility through modern procurement methods.

Government procurement provides a fertile ground for private distribution of largesse and having credible procedures and practices can significantly reduce corruption. Therefore, it is critical that reforms in the procurement regime are fast-tracked to ensure that principles of integrity, transparency, accountability, fairness, economy and efficiency are vigorously applied in all public investments and purchases.

(The authors are with Public Interest Foundation)
Courtesy: Economic times

Posting of details on award of tenders/contracts on websites., CVC OM Dt 14/07/2009

Purchase of Note Books/ Lap-Top computers by Ministries/ Departments, GoI OM Dt 26/05/2009

Adoption of Integrity Pact-Standard Operating Procedure- CVC OM Dated 18/05/2009

CVC released its standard operating procedure reagrding adoption of Integrity pact during major purchase by Government Departments/PSU/ Autonomous Oragnisation.
Integrity Pact (IP), a vigilance tool conceptualized and promoted by the Transparency International. The Commission has, through its Office Orders No. 41/12/07 dated 04.12.07 and 43/12/07 dated 28.12.07 and Circulars No. 18/05/08 dated 19.05.08 and 24.08.08 dated 05.08.2008 , recommended adoption of Integrity Pact and provided basic guidelines for its implementation in respect of major procurements in the Government Organizations.

Details can be found here

CSIR Purchase Rules of Goods & Services-2008 & CSIR & Purchase Manual of Best Practices-2008 (now avaliable on website)

Rites Signs MoU for Integrity Pact (PIB)

RITES Ltd, a Government of India Enterprise under the Ministry of Railways entered into a Memorandum of Understanding (MOU) with Transparency International India (TII) to maintain complete transparency in major contracts and procurements. The MOU was signed by Mr.V.K.Agarwal, Managing Director (RITES) and Admiral (Retd) R.H.Tahiliani, Chairman Transparency International India in the presence of Mrs. Ranjana Kumar, Vigilance Commissioner, Central Vigilance Commission (CVC).

Integrity Pact model is being followed by the Corporates worldwide as it binds a company and its suppliers to ethical conduct in contracts and implementation of projects. CVC has recommended adoption of this pact in respect of all major procurements. The pact will be monitored by the Independent External Monitors (IEM) who will provide an in-process integrity audit and conflict resolution mechanism to address to timely confusions, complaints and communication gaps.

For RITES, business ethics is the foremost among the set of its core values which form a component of the employee evaluation and promotion criterion.

Contract Law

The Law of Contracts is the basis of business law because the bulk of transactions of the people engaged in trade, commerce and industry is based on contracts. In India, the Law of Contracts is contained in the Indian Contract Act,1872. The Act lays down the general principles relating to formation, performance and enforceability of contracts and the rules relating to certain special types of contracts like, Indemnity and Guarantee; Bailment and Pledge, and Agency. The Partnership Act; the Sale of Goods Act; the Negotiable Instruments Act; the Companies Act, though technically belonging to the Law of Contracts, have been covered by separate enactments. However, the general principles of the Contract Law are the basis for all such contracts as well.

The principal features of the Law of Contract are:-

• The parties to the contract make the law for themselves.


• The Act is not exhaustive since it does not take into its purview all the relevant legislations.


• It does not override customs or usages.


• The Law of Contracts is not the whole law of agreements.

As per the Indian Contract Act,1872, a "contract" is an agreement enforceable by law. The agreements not enforceable by law are not contracts. An "agreement" means 'a promise or a set of promises' forming consideration for each other. And a promise arises when a proposal is accepted. By implication, an agreement is an accepted proposal. In other words, an agreement consists of an 'offer' and its 'acceptance'.

An "offer" is the starting point in the process of making an agreement. Every agreement begins with one party making an offer to sell something or to provide a service, etc. When one person who desires to create a legal obligation, communicates to another his willingness to do or not to do a thing, with a view to obtaining the consent of that other person towards such an act or abstinence, the person is said to be making a proposal or offer.

An agreement emerges from the acceptance of the offer. "Acceptance" is thus, the second stage of completing a contract. An acceptance is the act of manifestation by the offeree of his assent to the terms of the offer. It signifies the offeree's willingness to be bound by the terms of the proposal communicated to him. To be valid an acceptance must correspond exactly with the terms of the offer, it must be unconditional and absolute and it must be communicated to the offeror.

An "agreement" is a contract if 'it is made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and is not expressly declared to be void'. The contract must be definite and its purpose should be to create a legal relationship. The parties to a contract must have the legal capacity to make it. According to the Contract Act, " Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of a sound mind, and is not disqualified from contracting by any law to which he is subject". Thus, minors; persons of unsound mind and Persons disqualified from contracting by any law are incompetent to contract.

Essential Elements of a Contract

Minimum two parties :- Atleast two parties are needed to enter into a contact. One party has to make an offer and other must accept it. The person who makes the 'proposal' or 'offer' is called the 'promisor' or 'offeror'. While, the person to whom the offer is made is called the 'offeree' and the person who accepts the offer is called the 'acceptor'.

Offer and acceptance :- There must be an 'offer' and an 'acceptance' to the offer, resulting into an agreement. Both offer and acceptance should be lawful.

Legal obligations :- The parties must intend to create a legal obligation.The agreement sought to be enforced should contemplate legal relations between the parties to it.

Lawful consideration:- A contract is basically a bargain between two parties, each receiving 'something' of value or benefit to them. This 'something' is described in law as 'consideration'. Consideration is an essential element of a valid contract. It is the price for which the promise of the other is bought. A contract without consideration is void. The consideration may be in the form of money, services rendered, goods exchanged or a sacrifice which is of value to the other party. This consideration may be past, present or future, but it must be lawful.

Competent parties:- The parties making the contract must be legally competent in the sense that each must be of the age of majority, of a sound mind, and not expressly disqualified from contracting. An agreement by incompetent parties shall be a legal nullity.

Free consent:- The contracting parties must give their consent freely. 'Consent' means that the parties must agree about the subject matter of the agreement in the same sense and at the same time. Consent is said to be free if it is not induced by coercion, undue influence, fraud,misrepresentation or mistake. The absence of free consent would affect the legal enforceability of a contract.

Lawful object:- The object of the agreement must be lawful. An agreement is unlawful, if it is:- (i) illegal (ii) immoral (iii) fraudulent (iv) of a nature that, if permitted, it would defeat the provisions of any law (v) causes injury to the person or property of another (vi) opposed to public policy.

Not expressly declared void:- An agreement expressly declared to be void under the Contract Act or under any other law, is not enforceable and is, thus, not a contract. The Contract Act declares void certain types of agreements such as those in restraint of marriage, or trade, or legal proceedings as well as wagering agreements.

Certainity and possibility of performance:- The terms of a contract must not be vague or uncertain. If an agreement is vague and its meaning cannot be ascertained, it cannot be enforced. Also,the terms of a contract must be such as are capable of performance. An agreement to do an impossible act is void and is not enforceable by law.

Legal formalities:- Generally, a contract may be oral or in writing. However, certain contracts are required to be in writing and may even require registration. Therefore, where law requires an agreement to be put in writing or be registered, the same must be complied with. For instance, the Indian Trusts Act requires the creation of a trust to be reduced to writing.

Breach of Contract

The remedies available to the aggrieved party, in case of breach of contract by the other party are:-

• Suit for rescission of the contract :- Rescission is the revocation of a contract. When a contract is broken by one party, the other party may sue for rescission and refuse further performance. In such a case, the aggrieved party is absolved of all its obligations under the contract.


• Suit for damages:- the party who is injured by the breach of a contract may bring an action for damages. Damage is the monetary compensation allowed by the court to the aggrieved party for the loss or injury suffered by him as the result of breach by the other party.


• Suit for injunction:- An injunction is an order of the court requiring a person to refrain from doing some act which has been the subject matter of contract. The power to grant injunction is discretionary and it may be granted temporarily or for an indefinite period.


• Suit upon 'Quantum Meruit' :- The term "quantum meruit" means, 'as much as is merited' or 'as much as earned'. A suit of quantum meruit is a claim for the value of the material used or supplied under a contract that has become void on account of breach by the other party. When a contract becomes void, any person who has received any advantages under such contract is bound to restore it, to the person from whom he received it.


• Suit for specific performance:- When the loss suffered by breach of contract cannot be compensated by damages or where there are no standards to ascertain the quantum of damages, the aggrieved party may approach the Court for the grant of a decree for specific performance of the contract. Specific performance is granted when:-
  
  
  • Money is an adequate remedy
  
  
  • It will be inequitable to either party
  
  
  • The contract is of a personal nature
  
  
  • the court cannot supervise its execution

Bidding not an end in itself: Allow single bid projects

Government is considering a proposal to permit single-bid road projects to go through. Earlier, the railways had thought of seeking Central

Vigilance Commission (CVC) protection before awarding diesel and electric engine manufacturing projects to sole bidders, but eventually decided to do it in-house.

Clearly, these instances indicate the process of awarding projects seems to have become more important than getting the project started quickly. The basic idea behind competitive bidding for any project is to give an opportunity to everyone and, through a market mechanism, obtain the least cost solution.

Clearly, to the extent there is an open bidding the first purpose of giving an opportunity to everyone has been served. If only one bidder chooses to participate in such a bidding, then so be it. The second issue is more important. In a single-bidder situation, the lack of competition would mean the quoted price may not be the best from the perspective of the one inviting the bids or awarding the project.

In such an event, there are two choices, both entailing some costs. One, the entire process can be aborted and bids called again. There is direct calculable costs of this action, escalation in project cost through delay and the loss of opportunity; there is a also the lesser cost of the bid process itself. As opposed to this, if the project is awarded to the sole bidder, the only cost is the possibility of a better price discovery, if there were more bidders. However, there is no way of knowing if in a multiple bid situation the price discovered would have been lower.

Therefore, it makes sense to award a project even if there is only a single bidder. However, the government must make an internal assessment of costs or tariff, depending on the nature of the project, and set a sort of reserve price. If the single bid betters the reserve price then the projects should be awarded.

In the current environment when investment sentiment is extremely poor, the priority should be to facilitate projects and not get too caught up in procedures. The bid documents should provide for the possibility of projects going to a single bidder and the CVC would do well to ensure that such awards do not become controversial.
Courtesy: Economic Times

Registration of CSIR for availing customs/Central Excise dUty exemption

PSUs may have to exercise stronger vigilance

New Delhi: Public Sector Undertakings (PSUs) may be asked to follow stronger vigilance procedures after Satyam’s accounting fraud came to the fore. The central vigilance commission has suggested a technical audit of all purchases and procurements made by all PSUs and Government departments every year under the aegis of the CVC. In fact, the commission is on course to ask the department of public enterprises (DPE) to include integrity as an essential component for calculating the performance score of various PSUs at the end of every fiscal.

“We are working on these proposals and will soon write to the department of public enterprises. We have already held meeting with chairmen and managing directors of various government owned entities,” central vigilance commissioner Pratyush Sinha told The Indian Express.

Technical audit will assess whether an equitable, transparent and fair procurement policy was followed by PSUs while awarding contracts and tenders. “So far what we have is a vigilance audit dealing with how a complaint is handled and what punitive actions are taken. Technical audit will be aimed at making the processes more preventive than curative,” he said.

Courtesy : Indian express

CSIR Purchase Rules of Goods & Services-2008 & CSIR & Purchase Manual of Best Practices-2008

The Governing Body CSIR in its 172nd meeting held on 07-11-2008 have approved “CSIR Purchase Rules of Goods & Services-2008” and “CSIR Purchase Manual of Best Practices-2008”.The operation of these rules and manual will come into force w.e.f. 1st April, 2009 and shall supersede CSIR Purchase Procedure-2000 (as amended) from the said date.
The term 'Goods & Services' used in this rule includes all articles, material, commodities, livestock, general furniture/ laboratory furniture, fixtures, raw material, spares, instruments, machinery, equipment, industrial plant, chemicals, solvents, gases, glassware, stationery, liveries, and any other item meant for Research & Development both standard and non standard.
It also Includes Annual Maintenance Contracts of goods and equipment purchased or otherwise acquired for the use of CSIR Labs. and Institutes, custom clearance & cargo handling & consolidation services, exporting of goods for warranty replacements/repairs/upgradation ,Specific Scientific & Technical Services viz, Professional consultant services, Computer & Network management, Software & web design Development services, Special Storage, Communication facilities but excludes publications, periodicals for library &or outsourcing activities relating to Infrastructure, house keeping security, cleaning, horticulture, works related to engineering services, Desk top printing (DTP), scanning, outputting, printing, binding, data entry work, packing and dispatching work, empanelment of media agency including graphic designer, cartoonist, etc. for which systems are already in operation.

Exchange Rate Variation (ERV)

In case of a contract involving substantial import content(s) and having a long delivery period (exceeding one year from the date of contract), an appropriate Foreign Exchange Variation clause may be formulated by the Purchase Organization in consultation with its Finance Wing, as needed, and incorporated in the Tender Enquiry Document. In that clause, the tenderers are to be asked to indicate import content(s) and the currency(ies) used for calculating the value of import content(s) in their total quoted price, which (i.e. the total quoted price) will be in Indian Rupees. The tenderers may be asked to indicate the Base Exchange Rate for each such foreign currency used for converting the FE content into Indian Rupees and the extent of foreign exchange rate variation risk they are willing to bear. To work out the variation due to changes (if any) in the exchange rate(s), the base date for this purpose will be the due date of opening of tenders/seven days prior to the due date of opening of tenders …….. (the purchase organization is to decide and adopt a particular suitable date). The variation may be allowed between the above base date and the date of remittance to the foreign principal/mid-point of manufacture of the foreign component/….. (the purchase organization is to choose the appropriate date). The applicable exchange rates as above will be according to the TT Selling Rates of Exchange as quoted by authorized Exchange Bankers approved by the Reserve Bank of India on the dates in question. No variation in price in this regard will be allowed if the variation in the rate of exchange remains within the limit of plus/minus ……. percent. (The purchase organization is to decide the figure). Any increase or decrease in the Customs Duty by reason of the variation in the rate of exchange in terms of the contract will be to the buyer’s account. In case Delivery period is refixed/ extended, ERV will not be admissible, if this is due to default of the supplier. The purchase organization may formulate an appropriate ERV clause on similar lines as above in consultation with their Finance Wing.” The following documents should be furnished by the supplier for claiming ERV:
(a) A bill of ERV claim enclosing working sheet
(b) Banker’s Certificate/debit advice detailing F.E. paid, date of remittance and exchange rate
(c) Copies of import order placed on supplier
(d) Invoice of supplier for the relevant import order

Performance Security

To ensure due performance of the contract, Performance Security is to be obtained from the successful bidder awarded the contract. Performance Security is to be obtained from every successful bidder irrespective of its registration status etc. Performance Security should be for an amount of five to ten per cent. of the value of the contract. Performance Security may be furnished in the form of an Account payee Demand Draft, Fixed Deposit Receipt from a Commercial bank or Bank Guarantee from a Commercial bank in an acceptable form safeguarding the purchaser’s interest in all respects. Performance Security is to be furnished by a specified date (generally 21 days after notification of the award) and it should remain valid for a period of 60 days beyond the date of completion of all contractual obligations of the supplier, including warranty obligations.
Submission of Performance Security is not necessary for a contract value upto Rs.1 lakh.
Forfeiture of Performance Security
Performance security is to be forfeited and credited to the purchase organization in the event of a breach of contract by the supplier, in terms of the relevant contract.
Refund of Performance Security
Performance Security should be refunded to the supplier without any interest, whatsoever, after it duly performs and completes the contract in all respects but not later than 60 days of completion of all such obligations under the contract.
Verification of the Bank Guarantees
Bank Guarantees submitted by the tenderers / suppliers as EMD / Performance Security need to be immediately verified from the issuing Bank before acceptance.

CVC Direction on time bound processing of procurement

What does 'unfair trade practices' mean?

The expression 'unfair trade practice' is one which is elaborately defined in the Consumer Protection Act and the Monopolies and Restrictive Trade Practices Act. However, much of the litigation in both forums centres around it. When the MRTP Commission fades away, this phrase will remain only in the consumer law. The Competition Act, which is yet to be implemented in full, does not deal with UTP directly. Despite the detailed definition, it divided two judges of the Supreme Court in a recent appeal against a judgment on the MRTP commission. In another decision, the commission itself confused UTP with 'deficiency in service.'
First, the differences in the Supreme Court over the applicability of the definition. In Philips Medical Systems (Cleveland) Inc vs Indian MRI Diagnostic & Research Ltd, the Indian firm ordered a whole body CT scanner from the manufacturer in the US. The US corporation required licences from the respective governments which did not come in time. Therefore the offer lapsed and the deal fell through. Fresh negotiations began between the firms, but it was apparently for a refurbished machine at a higher price. Following differences, the Indian firm called off the talks and imported a similar scanner from Japan.
The Indian firm also moved the commission alleging 'restrictive trade practice' by the US firm pleading losses and seeking compensation. The commission held the US firm guilty of both unfair and restrictive trade practices and awarded compensation. Therefore, the US firm appealed to the Supreme Court where it succeeded in setting aside the commission's order.
Though both the judges in the Supreme Court agreed on quashing the commission's order, they could not agree on the interpretation of the UTP. How can there be a UTP when there was no supply of goods at all, one judge asked.
The original MRTP Act did not contain the phrase UTP. The law was aimed against restrictive and monopolistic practices only. The assumption was that if the manufacturers, producers or dealers could be prevented from distorting competition, the consumer would automatically get a fair deal. This was not to be. Therefore, the concept of UTP was introduced in 1984 through an amendment.
According to this judge, the amendment was meant to protect consumers against false and misleading ads and defective goods, among other things. It was not meant to deal with a situation where goods are not sold at all, as in this case. The definition of UTP was further amended in 1991, but still this sort of situation was not covered by the change.
The other judge felt that the phrase should be liberally interpreted. He said: 'There may be situations where a promise to supply a particular good, which the supplier knew that he was in no position to supply, with a motive of promoting of some other model, could occur. In such a case, a customer may be forced to obtain the same material from some other party and suffer losses in the process. Even without actual sale of goods, such an act on the part of the supplier could also amount to UTP.'
Normally such differences in the Supreme Court are resolved by referring them to a larger bench, but in this case the disagreement was left as it is, perhaps because the commission itself is on its last legs.
However, since the definition of UTP in the Consumer Protection Act is identical to that of the MRTP Act, the problem is bound to be brought back to the Supreme Court soon by consumer activists and lawyers. The Competition Act does not define UTP itself, but only 'trade practice.'
Moreover, the proposed Competition Commission is enjoined to carry on with part of the cases pending before the MRTP commission. The commission set up under it also has the duty to 'eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade carried on by other participants.' Therefore, there should be more clarity in the interpretation of UTP.
The confusion now prevailing can be gauged from another judgment of the MRTP commission in the judgment, KLM Royal Dutch Airlines vs Director General, delivered last month. Some consignments of badges and crests sent for a tournament in New Orleans, US, did not reach before the event, raising a claim for damages for 'deficiency in service.'
Courtesy :- Business Standard

Performance Audit on Procurement of Stores and Inventory Control in Department of Space by CAG

Planning for procurement

• Out of a total procurement budget of Rs.8636.18 crore of Departmentof Space (DOS) during 2001-02 to 2006-07, the unutilised budget increased consistently from Rs.83.28 crore in 2002-03 to Rs.438.28 crore in 2006-07. The extent of savings was as high as 30 to 38 percent in some years in certain Centres, indicating serious deficiencies in procurement planning and management.[Para 2.6.1& 2.6.2]
  
• Procurement planning of DOS was deficient as it placed orders on piecemeal indent basis. Assessment of requirement and cost estimations by indentors were inaccurate, leading to large number of indents not resulting in purchase orders and wide variations between indent value and order value. Non-consolidation of similar purchases also resulted in uneconomical purchases and extra expenditure of Rs.93.95 lakh. [Para 2.7.2.1, 2.7.2.2 & 2.7.2.3]
  

Competitiveness in the tendering process

• Procurement practices adopted by DOS did not ensure adequate transparency and competition as 67 per cent of procurements amounting to Rs.996 crore were made on proprietary/ single tender basis. There were instances of proprietary purchases being made for routine items and also in cases where more than one source of supply was available.[Para 2.7.3.1 ]

Fairness and objectivity in the selection process and award of contract

• In violation of codal provisions and CVC guidelines, negotiations were held with other than lowest bidders resulting in placement of irregular purchase orders in eight cases, amounting to Rs.44.58 crore.Non-award of contract to the lowest bidders resulted in extra expenditure of Rs.3.42 crore in two cases.[Para 2.7.4.1]
  
• ISAC awarded contract to a supplier who was not found technically suitable and thus, extended undue favour by awarding contract worth Rs.4.27 crore. In other two procurements, ISAC extended undue favour to the suppliers in award of contract worth Rs.9.99 crore by changing the selection criteria after invitation of bids. Changes in terms of purchase order/contracts in other three cases benefited suppliers to the tune of Rs.1.87 crore. [Para 2.7.4.2, 2.7.4.3 & 2.7.4.4]
  
• Delay and inefficiencies in processing and finalisation of tenders resulted in avoidable additional expenditure of Rs.2.70 crore in two cases due to procurement of stores at higher rates, after expiry of initial validity of offer.[Para 2.7.4.4]
  

Efficiency in Post Contract Management

• There were significant delays in inspection of the stores received.Non-replacement of rejected items at ISAC resulted in unfruitful expenditure of Rs.8.73 crore in five cases. Moreover, non-installation/ delayed installation of equipment in six cases for period ranging from 5 to 60 months at LPSC and ISAC resulted in blocking of funds and idling of equipment worth Rs.12.43 crore.[Para 2.7.5.1 & 2.7.5.2]
  
• Advances in 1177 cases, worth Rs.437.73 crore, paid to foreign and indigenous suppliers were pending for 1 to 15 years and more. No interest was charged on these long pending advances by DOS.[Para 2.7.5.3]
  
• There was lack of monitoring of adjustment of advances and renewal of Bank Guarantees. Non renewal of 147 cases of Bank Guarantees amounting to Rs.83.65 crore may expose the organisation to financial risks in cases where suppliers default in making supplies/executing work orders. [Para 2.7.5.4]
  

Inventory Control

• ISAC did not revise its procurement policy for Bonded Stores since the last decade which resulted in blocking of funds worth Rs.600 crore.[ Para 2.8.1]
  
• There was overstocking in 9055 categories of electronic, electrical, electro-mechanical components (Bonded Stores) worth Rs.75.02 crore, resulting in infructuous expenditure due to obsolescence of items. No physical verification of Bonded Stores was conducted in ISAC after 1995-96.[Para 2.8.2, 2.8.4]

Summary of Recommendations

• To reduce delays, DOS should prescribe appropriate time frame for each stage of procurement viz., indenting, sanction, issue of purchase order, and supply. Such a time frame should be prescribed after taking into account the type of material to be procured and the sources of supply.
• DOS should streamline the system of assessment of requirement by the indentors by maintaining a centralised database of various items, their specifications, status of technology and availability in market, prevailing costs, sources of supplies etc, to ensure accurate projection of requirements and realistic estimation of cost.
  
• DOS should prepare annual procurement plans by consolidating requirements of all the end users in advance to avoid delays, repetitive procurements, maximise value for money by availing quantity discount and enhancing competition. DOS should strictly follow codal provisions in selection and award of contracts by placing orders on the lowest qualified bidder.
  
• To ensure transparency in the procurement process, DOS may consider going in for limited tendering for generic products where more than one supplier is available in the market.
  
• DOS may build up a database of vendors to bring in more competition in the procurement process and reduce proprietary/single tender procurements.
  
• DOS should ensure compliance to the CVC guidelines during evaluation of tenders.
  
• DOS should strictly follow codal provisions in selection and award of contracts by placing orders on the lowest qualified bidder.
  
• DOS should avoid inordinate delays in processing and finalisation of tenders to ensure timely procurement and avoid extra expenditure due to subsequent escalation in price.
  
• DOS should avoid inordinate delays in the placement of purchase orders and ensure strict compliance to the codal provisions for relaxation of terms and conditions of contracts.
  
• DOS should streamline its system of inspection of materials as delayed/non inspection deprived DOS of the opportunity of preferring damage/warranty claims and seeking replacement of rejected items.
  
• DOS should avoid delays in installation/commissioning of equipment by ensuring timely availability of site, infrastructure, etc.
  
• DOS should ensure that advance payments to suppliers are made only in exceptional circumstances subject to payment of interest at appropriate rates.
  
• DOS should make efforts to recover long outstanding advances from the defaulting suppliers.
  
• DOS should closely monitor adjustment of advances and renewal of Bank Guarantees to minimise its financial risk in cases of default on part of the suppliers in meeting their obligations under the contract.
  
• DOS may consider revision of its purchase procedures so as to make it consistent with the provisions of General Financial Rules, 2005.
  
• DOS may review its policy to stock Bonded Stores items on actual need basis and past consumption pattern. The procurement policy drafted in 1995-96 needs be reviewed in the present scenario.
  
• DOS should ensure that physical verification of all types of stores is conducted periodically to reduce inventory cost and make inventory management more efficient.
  
• The items declared as obsolete/ surplus/ un-serviceable should be immediately disposed off to avoid their intrinsic value from diminishing and thus incurring avoidable carrying costs.

Other comments

• Rule 161 of GFR, 2005 emphasises the importance of fixing time frame at different stages of procurement. Such a time frame will also make the concerned purchase officials more alert.
• Planning for procurement involves realistic and timely assessment of requirements, making proper cost estimates, conducting market surveys to identify the possible sources of supply, clubbing similar requirements to avoid repetitive tendering and obtain quantity discounts, selecting appropriate mode of procurement and formulating most suitable strategy to ensure timely availability of goods and services, as per the requirements of end users.
• As the estimated rate is a vital element in establishing the reasonableness of prices, it is important that the same is worked out in a realistic and objective manner on the basis of prevailing market rates, last purchase prices, economic indices for the raw material/ labour, other input costs etc., wherever applicable and assessment done based on intrinsic value.
• Competition is the key element of the procurement policy framework and promotes value for money. Effective competition requires non-discrimination amongst suppliers in procurement and the use of competitive procurement process.
• As per Rule 154 GFR “procurement from a single source may be resorted to only in emergency cases and in cases of availability of the sole supplier for the required goods, with the approval of the competent authority”.
• Good procurement practices offer all interested suppliers a level playing field to compete and thereby, directly expand the purchaser’s options and opportunities. A good procurement process should not only be fair but should be seen to be fair.
• Efficient post contract management includes immediate inspection of stores, their installation and commissioning, taking proactive action for replacement of rejected stores, monitoring of financial transactions to safeguard the interest of the organisation, by ensuring that the securities furnished by the suppliers are kept safely and updated periodically.
• The formulation of appropriate policy and procedures relating to inventory control and management assumes greater significance, especially in the context of the organisations where the level of procurement is very high. An efficient inventory management not only facilitates smooth operations of an organisation, but also optimises the level of inventory, thus, impacting expenditure on stores. This also involves physical verification of inventory on regular intervals which facilitates identification of surplus/obsolete/ unserviceable items and thus, efficient disposal.

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Letter of Credit - Essential Information

Letter of credit (L/c) is the most preferred payment option for exporters. Compared to other payment options, L/c has many safeguards for sellers and at the same time assurance for buyers. It is usually issued by larger banks and contain a promise to pay a seller (beneficiary) upon receipt of goods by a buyer if certain conditions outlined in the letter have been met.

What is Letter of Credit ?

Letter of Credit or (L/c) is a legal document to arrange payment between a buyer(importer) and seller (exporter). The bank, as intermediary, ensures security for both parties, giving the exporter confidence that the importer is capable of paying for the goods while assuring the importer that payment will be made to the exporter only after the terms outlined in the letter of credit have been met.

Analysis of typical L/c Transaction

• Step 1 After successful negotiation on price, specification, quality etc, Buyer selects a seller and places order for specified goods

• Step 2 Seller accepts the order

• Step 3 Buyer and Seller agrees on terms and conditions of the sale. Buyer instructs its bank to open a L/c incorporating previously agreed terms of sale

• Step 4 The buyer's bank prepares a Letter of Credit (L/c), including all instructions to the seller's bank concerning the shipment and sends the L/c to the seller's bank, requesting confirmation. The seller may request confirmation from a confirming bank for added security.

• Note: There are often delays at above two steps for various reasons like buyer does not have sufficient funds or seller requests change in L/c terms. Amendments are issued to incorporate changes in L/c terms.

• Step 5 The Seller's bank prepares a letter of confirmation to forward to the seller along with the L/c. The seller reviews carefully all conditions in the L/c specially shipment schedule in consultation with his freight forwarder.

• Step 6 The seller arranges the goods and hand over to freight forwarder for delivery at appropriate port or airport.

• Step 7 Once goods are loaded/shipped, the forwarder completes necessary documentation and hand them over to the seller. The seller then presents the documents to his bank, informing full compliance with terms and conditions of L/c.

• Step 8 The seller's bank reviews the documents. If they are in order, the documents are airmailed to the buyer's bank for review and passing necessary documents to buyer. The buyer gets the documents needed to claim the goods.

• Step 9 The buyer's bank returns accepted draft and informs buyer. Buyer pays bank.

• Step 10 The seller's bank gets payment and pays seller.

The letter of Credit Ensures that:

Payment to the seller will only be made after the terms of the L/c have been met. The documents, which have been reviewed by the bank's experienced staff, are in order. The seller is assured of the buyer's ability to pay and, as a result, a better price and more advantageous

Closer look at some key terminology

Irrevocable Letter of Credit

An irrevocable letter of credit cannot be amended or cancelled without the consent of the issuing bank, the confirming bank (if any), and the beneficiary. The payment is guaranteed by the bank if the credit terms and conditions are fully met by the beneficiary. The words "irrevocable documentary credit" or "irrevocable credit" may be indicated in the L/c.

Irrevocable and Without Recourse Letter of Credit

The irrevocable letter of credit received from an advising bank may be indicated as "irrevocable and without recourse documentary credit". The words "without recourse" mean that the advising bank will not be able to recover the money paid to the beneficiary in case the issuing bank does not pay the advising bank.

Revocable Letter of Credit

A revocable letter of credit can be amended or cancelled by the issuing bank at any time without the consent of the beneficiary, often at the request and on the instructions of the applicant (buyer). There is no security of payment in a revocable letter of credit. The words "this credit is subject to cancellation without notice", "revocable documentary credit" or "revocable credit" usually are indicated in the L/c. Obviously, this type of L/c is highly risky from the beneficiary point of view.

Confirmed Irrevocable Letter of Credit

An irrevocable letter of credit opened by an issuing bank whose authenticity has been confirmed by an advising bank (usually a prime world bank) and where the advising bank has added its confirmation to the credit is known as confirmed irrevocable letter of credit. The words "we confirm the credit and hereby undertake ..." or "we add our confirmation to this credit and hereby undertake ..." normally are included in the L/c. An exporter whose method of payment is a confirmed irrevocable L/c is assured of payment even if the importer or the issuing bank defaults. The confirmed irrevocable L/c is particularly important from buyers in a country which is economically or politically unstable. In a confirmed letter of credit, the exporter or the importer pays an extra charge called the confirmation fee, which may vary from bank to bank within a country. The fee usually is added to the exporter's account. The exporter may indicate in the sales contract that the confirmation fee and other charges outside the seller's country are on the buyer's account.

Unconfirmed Irrevocable Letter of Credit

An irrevocable letter of credit opened by an issuing bank but not confirmed by an advising bank (usually a prime world bank) is known as an unconfirmed irrevocable letter of credit. The promise to pay comes from the issuing bank only, unlike in a confirmed irrevocable L/c where both the issuing bank and the advising bank promise to pay the beneficiary.

Restricted Negotiable Letter of Credit

In a restricted negotiable letter of credit, the authorization from the issuing bank to pay the beneficiary is restricted to a specific nominated bank.

Freely Negotiable Letter of Credit

In a freely negotiable letter of credit, the authorization from the issuing bank to pay the beneficiary is not restricted to a specific bank, any bank can be a nominated bank as long as the bank is willing to pay, to accept draft(s), to incur a deferred payment undertaking, or to negotiate the L/c. The words "this credit is not restricted to any bank for negotiation" or "this credit may be negotiated at any bank", or similar words, may be indicated on the L/c.

Revolving Letter of Credit

When a letter of credit is specifically designated "revolving letter of credit", the amount involved when utilized is reinstated or replenished. In other words, once supply has been made and beneficiary receives payment for the shipment, the L/c amount becomes available again without issuing another L/c and usually under the same terms and conditions. The revolving L/c is used for regular shipment of a large quantity over a period of time (several months).

Latest Negotiation Date

The latest negotiation date is the last day of the period of time allowed by the letter of credit for the presentation of documents to the bank. The latest negotiation date may not necessarily be the L/c expiry date. For example, the latest negotiation date can be July 31, 2001 or 15 days after the date of shipment, whichever comes first. In case the L/c does not stipulate the latest negotiation date, it is within 21 days after the date of issuance of the transport documents, but on or before the L/c expiry date.

Expiry Date and Place

The expiry date and place is the last day of validity of the credit and the place allowed by the letter of credit for the presentation of documents for payment, acceptance or negotiation. In case the validity of an L/c is stated in a period of time, for example "this credit is valid for three months" or "this credit is available for two months" or "this credit is good for one month", but does not specify the date from which the time is to run, its validity starts from the issuance date of L/c by the issuing bank. The bank normally discourages stating the L/c validity in a period of time. In case the expiry date and/or the latest negotiation date falls on a day on which the bank is closed for reasons not including the acts of God, strikes, riots, civil commotions, lockouts, insurrections, wars or any other causes beyond the bank's control, the expiry date and/or the latest negotiation date is extended to the succeeding first day on which the bank is opened. Such extension, however, does not extend the latest date of shipment.

Latest Shipment

The latest shipment---latest date of shipment or last date for shipment---is the last day of the period of time allowed by the letter of credit for shipment, dispatch or taking in charge.

Transferable Letters of Credit

A letter of credit can be transferable or non-transferable. The L/c usually indicates "transferable" in the case of a transferable credit. In the absence of such indication, the L/c is deemed to be non-transferable. In a transferable letter of credit, the first beneficiary (the exporter) may request the paying, accepting or negotiating bank to make the credit available in whole or in part to one or more second beneficiary or beneficiaries. The second beneficiary can be another exporter, trader or manufacturer. The L/c is expressly designated "transferable" by the issuing bank on instructions of the applicant. The letter of credit that was transferred or made available to the second beneficiary is known as the transferred credit. The bank that makes the transfer is known as the transferring bank.

Non-transferable Letter of Credit

In a non-transferable letter of credit, the beneficiary cannot transfer the credit to other beneficiary. The L/c usually indicates "non-transferable" or "not transferable. " Even if such indication in not there, the L/c is deemed to be non-transferable.

CHECK POINTS FOR PREPARATION OF TENDER ENQUIRY

Ensure that
1. Standard and correct forms are used for tender enquiry and all amendments authorized to these forms from time to time are carried out before issue.
2. Time and date for receipt and opening of tenders are indicated as per the guidelines.
3. The prescribed time been allowed to the to the tenderers to submit their quotations, depending on the type of enquiry being issued.
4. The period for which the tenders are to be kept open for acceptance been indicated realistically keeping in view the nature of the store and the time lag likely to be involved where consultation with the indentor on the suitability of offers received would become necessary.
5. The amount to be furnished by unregistered firms as EMD been calculated correctly and indicated if the enquiry is for purchase against adhoc indent ?
6. Description of stores including specifications/drawing is correctly indicated in the schedule.
7. The sources from where the specification/drawing can be obtained are indicated.
8. If stores are required as per BIS specification a clause for giving Purchase Preference to ISI Marked stores is included.
9. If the store is required to non-standard specification/drawing, required number of copies of drawings/specifications are available.
10. Where tender sample is required to be furnished authority to whom it should be sent for testing and the time within which the sample should be submitted are indicated correctly in the enquiry.
11. If the store is reserved item for purchase from any particular sector of industry a clear indication is given to that effect.
12. Inspecting Authority is correctly indicated.
13. The instructions to invitation to tender and conditions of contract applicable have been correctly indicated in the enquiry.
14. Contract clauses contained in the standard forms used for issue, of tender enquiry and the general and Special Conditions of contract are not reproduced in the tender enquiry.
15. The appropriate price variation clauses in the enquiry where such a provision is necessary has been given along with base price on which firms should offer their prices.
16. Delivery required is correctly given. Where purchase of large quantities of stores are involved delivery may be specified in installment particularly in respect of cases where contracts are likely to be concluded on variable price basis.
17. Insertion of standard pre-estimated Liquidated Damages Clause in Tender Enquiry for claim against delay in supplies.
18. Insertion of modified clause for cancellation of contract and effecting repurchase.
19. In case of purchase of imported stores the appropriate shipping clauses are incorporated. Other special conditions viz. payment terms for FOB/FAS contracts etc. should also be indicated in the enquiry.
20. That all other special conditions as per existing orders are incorporated in the Tender Enquiry.
21. Period of validity of, performance guarantee whether to cover warranty period also.

Efficiency, Economy and Accountability in Public Buying

Public procurement procedures must conform to exemplary norms of best practices to ensure efficiency, economy and accountability in the system.To achieve this objective, the following key areas should be taken care of:
(i) To reduce delays, each Ministry / Department should prescribe appropriate time frame for each stage of procurement; delineate the responsibility of different officials and agencies involved in the purchase process and delegate, wherever necessary, appropriate purchase powers to the lower functionaries with due approval of the competent authority.
(ii) Each Ministry / Department should ensure conclusion of contract within the original validity of the tenders. Extension of tender validity must be discouraged and resorted to only in absolutely unavoidable, exceptional circumstances with the approval of the competent authority after duly recording the reasons for such extension.
(iii) The Central Purchase Organizations should bring into the rate contract system more and more common user items, which are frequently needed in bulk by various Ministries / Departments. The Central Purchase Organizations should also ensure that the rate contracts remain available without any break.
Source: MANUAL ON POLICIES AND PROCEDURES FOR PURCHASE OF GOODS