Purchase Manual

he cardinal principle of any public buying is to procure the materials/services of the ‘specified’ quality, at the most competitive prices and, in a fair, just and transparent manner. To achieve this end, it is essential to have uniform -and well documented policy guidelines in the organisation so that this vital activity is executed in a well-coordinated manner with least time and cost overruns. In some of the organisations, the purchase manual is either not at all there or has not been updated for years together. Thus, the system of procurement is quite ad hoc and arbitrary.

A codified purchase manual containing the detailed purchase procedures, guidelines and also proper delegation of powers, wherever required needs to be made by all the organisations so that there is systematic and uniform approach in the decision-making. Such an integrated approach is likely to put a cap on the corruption and would also ensure smoother and faster decision-making.

Filing System 

The filing system adopted in most of the organisations is not satisfactory. Even the files are not being paginated. The part files are opened as and when new action is initiated and these part files are not merged with the main file, which inter alia results in break in continuity and arbitrariness in decision-making. The decisions/deliberations of the individuals or the tender committees are not properly documented or recorded which dilutes the accountability of the officers and may result in the ‘interested’ officers going scot-free, even if serious lapses are established against them.

The procurement files are very important and sensitive documents and thus there is a need to have a single file system with proper page numbering. In case of urgency, if opening of the part files is unavoidable, the same should thereafter be merged with the main file. The decisions and deliberations of the individuals or the tender committees also need to be properly recorded and well documented.

Provisioning

It has been noticed that in certain cases excessive, fraudulent and infructuous purchases were made without taking into consideration the important aspects like available stocks, outstanding dues/supplies, past consumption pattern and average life of the equipments/items etc. These excessive infructuous purchases were at times made in collusion with the firms. This resulted in not only the material lying unutilised for years together with no residual life but also a lot of extra expenditure was incurred on the inventory carrying cost. One of the organisations took double procurement action for purchase of tyres against the same liability. Even the factors like shelf life of 5 years and the past consumption pattern were ignored while placing the orders. As no action was taken to dispose off the surplus tyres, the department is incurring inventory carrying cost of about 20-25% per year for the last 10 years and the salvage value of the quantity held in stocks is likely to be ‘Nil’ due to expiry of the shelf life. In few cases, it was noticed that though the demand for the stores was simultaneously received from different wings/field units but/ they were not clubbed together and were rather processed individually against the established principle of bulk buying.

The provisioning of the stores needs to be done with utmost care taking into account the available stock, outstanding dues supplies, the past consumption pattern, average life of the equipment/spares. The requirements also need to be properly clubbed so as to get the most competitive and best prices. The requirements should not be intentionally bifurcated / split so as to avoid approval from higher authorities.

In a case for purchase of 1,000 KVA D.G. sets, the tender enquiry was originally issued by the Organisation for supply of D.G sets with four stroke engine. However, on the request of one of the bidders, the type of the engine was later changed from four strokes to two strokes and contract was awarded. During investigation, it was found that the engine manufacturer had given a release that the two stroke engine shall be phased out in two years. Surprisingly the existing DG sets were with four-stroke engine.

In yet another case instead of buying DG sets for their energy needs, a shipyard hired DG sets from a firm in an ad hoc manner, without following competitive bidding. On investigation, it was revealed that the energy cost/unit worked, in excess of Rs.40/-.

One time purchase for projects or capital equipments / spares should be properly justified depending on the actual requirement usage, rate of return etc. further, the obsolescence factor should also be taken into account i.e. the equipment to be purchased should conform to the latest specifications and technology available in the market.

Appointment of Consultants

Some of the organisations appoint consultants due to lack of in-house expertise in technical matters. It has invariably been noticed that the appointment of consultants is not being done in a transparent manner and their working is also not properly supervised.

i. The appointment of consultants is often made in an arbitrary manner without inviting tenders and without collecting adequate data about their performance, capability and experience. In some of the cases, the consultants were appointed after holding direct discussions with only one firm without establishing the reasonableness of consultation fee payable to them. In some cases the terms were modified to the financial advantage of the consultant, even after award of the contract. In one of the cases, the organisation continued with a consultant for about 30 years and for all types of contracts. In yet another case, the Organisation invited offers from 8 enlisted consultants but, awarded the contract to the highest bidder on the plea that they are Padam Shree awardees. Extra amount on account of travel expenses was also sanctioned after award of the contract.

ii. The payment terms to the consultants are allowed quite liberally. In one of the cases, the consultant fee was paid on quarterly basis without linking the same with the progress of the project. Even full payments had been authorised before the completion of the project.

iii. Quite a few organisations especially in the Banking Sector seem to abdicate their responsibility completely and do not oversee the working of the consultants resulting in the latter exploiting the circumstances and at times in collusion with the suppliers, give biased recommendations in favour of a particular supplier. It has also been noticed that the consultants recommend acceptance of inferior items / equipments and also give undue benefit to the suppliers like nonrecovery of penalties, for the delayed supplies and corresponding reduction in the excise duty / custom duty, if announced after award of the contract.

The consultants need to be appointed only when it is felt absolutely essential. The appointment of consultants needs to be done in a transparent manner and after following the competitive tendering system. The consultant’s role should be well-defined. The consultant is meant to assist the departmental officers because of lack of expertise and it should not mean that they takeover all the functions. The responsibilities relating to award of contract and execution of contract after appointment of consultant should not be abdicated completely by the organisations. Rather appropriate checks should be exercised at all stages of the execution of the contract. Penal clauses for deficiency in service should invariably be stipulated in the contracts/MOUs with the consultants.

Estimated Rates

It was observed that the estimated rates are being worked out in an ‘unprofessional and perfunctory manner, at times by extrapolating the price of the lowest capacity equipment or by applying a uniform yearly compounded escalation over the prices of similar equipment purchased few years ago. Consequently, the inflated estimated rates prepared by the Organisations resulted in acceptance and payment of higher prices to the firms.

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, IEEMA formula, wherever applicable and assessment based on intrinsic value etc.

Notice Inviting Tender

Against the most preferred and transparent mode of Global tender enquiry/advertised tender enquiry, some of the Organisations are generally issuing limited tender inquiry to select vendors, irrespective of the value of purchase. Further, the credentials of the firms and the criteria adopted for selection of such vender’s, in most of the cases, are not put on record. This not only results in lack of competition but also favouritism to the select vendors. It has been noticed that even in cases where advertised/global tender inquiries were issued, the same were published in the local dailies and not in any National Newspaper and particularly in Indian Trade Journal, Calcutta, which is a Government publication and is regarded as the standard medium for advertising tender notices in India. The main purpose of issuing advertised/global tender inquiry is to give wide publicity. It has been noticed that the Organisations do not forward the copies of the tender notices to the registered/past/likely suppliers and while in case of imported stores, the copies of the tender notices are not being forwarded to Indian Missions/Embassies of major trading countries.

In order to give wide publicity, generate enough competition and to avoid favouritism, as far as possible, issue of advertised/global tender inquiries should be resorted to and published in ITJ and select National Newspapers. The copies of the tender notices should be sent to all the registered/past/likely suppliers by UPC and also to the Indian Missions / Embassies of major trading countries in case of imported stores.

It has also been noticed that for advertised/global tenders, against a normal time of four to six weeks, there are instances wherein time for tender opening of only 12 to 15 days was given. Similarly, in case of limited tenders, against a normal time of 21 to 30 days, there are cases where tenders were opened in a short period of only 7 days. The tender opening in such a short duration is normally resorted to in case of recorded emergencies, where in the purchaser sends the tender inquiries by faster means like fax speed post. However, in most of such cases, neither urgency nor the proof of having sent the inquiries by fax/speed post could be established. In few cases, it was also noticed that though short term tenders were invited, expressing urgency of the requirement, however, the cases were processed in a very routine and casual manner without any consideration for urgency. On the other hand, in some cases, it was noticed that with the short time available, only 2-3 vendors who probably knew about the system, submitted their bids and, thereby forming a cartel and circumventing the system. In some of the cases of Global tenders, it was observed that though the Organisations had given a time of 6 to 8 weeks for tender opening but the tender sale was closed 2 to 4 weeks in advance of tender opening, thereby effectively giving only one month time to bidders for purchase of tender documents. The very purpose of floating Global tender which is to give wide publicity and sufficient time to bidders to get the bidding documents and submit their offers, in such cases seems to have been defeated.

With a view to have wider, fair and adequate competition, it is important that sufficient time of say 4 to 6 weeks in case of advertised/global tenders and 3 to 4 weeks in case of limited tenders is allowed, except, in cases of recorded emergencies, wherein also, a reasonable time should be permitted and tenders should be sent by faster means like speed post /fax. The tenders should preferably be kept open for sale till the date of tender opening or just one day prior to the date of tender opening. With the widespread use of information technology, the tender notices should also be put on the website and e-mail address of the organisation should be indicated in the tender notice.

In case of proprietary purchases, the detailed justification for purchase from a single vendor is not being placed on record. As by issuing single tender, the competition is totally eliminated and the possibility of paying higher prices cannot be ruled out.

It is imperative that the purchase on single tender basis be made with the detailed justification in its support and with the approval of competent authority, including associated finance.

Tender/ Bid Document

The terms and conditions being stipulated in the bid documents by some of the Organisations are quite insufficient and sketchy. Sometimes, the bid document contain obsolete, unwanted matter and conflicting and vague provisions, resulting in wrong interpretation, disputes and time & cost over runs.

Even the time/date for receipt and opening of tenders is not being incorporated in the documents. The important clauses relating to earnest money. Delivery schedule. Payment terms, Performance/Warrantee Bank Guarantee, Pre-despatch inspection. Arbitration, Liquidated Damages/Penalty for the delayed supplies and Risk-purchase etc., are not being incorporated in the bid documents. All these clauses are important for safeguarding the interest of the purchaser and also have indirect financial implications in the evaluation of offers and execution of the contracts.

All the important clauses as brought out above need to be incorporated in the bidding documents so as to fully safeguard the interest of the Government, and, for evaluation of bids on equitable and fair basis and in a transparent manner.

In some cases, it was noticed that the amount of earnest money deposit stipulated in the tender document was grossly insufficient to protect the Government, interest in case of breach committed by the bidder. Some of the organisations instead of ignoring the bids not accompanied with earnest money deposit along with the tenders as per bids requirements, asked the bidders to submit EMD, after tender opening.

The primary objective of submission of earnest money deposit is to establish the eamestness of the bidder so that he does not withdraw, impair or modify the offer within the validity of the bid. It also helps in restricting if not eliminating ‘speculative’, ‘frivolous’ or ‘wait and see’ bids. Since any relaxation regarding submission of earnest money deposit has financial implications besides giving encouragement to the bidders to submit frivolous bids as indicated above; the terms & conditions should clearly stipulate that the offers without earnest money deposit would be considered as unresponsive and rejected.

In case of tenders invited in Two-bid system, some of the Organizations stipulate Earnest Money Deposit as percentage of the tender cost instead of fixed amount. In the Two-bid system, if EMD is taken on the basis of some stated percentage of tender value and with the announcement of the amount of EMD submitted by the bidders at the time of tender opening, the same will give every bidder a good indication of the prices quoted by the competitors by making back calculations. A bidder can use this information to the disadvantage of his competitor, if prices are subsequently modified.

The earnest money deposit in case of two-bid system needs to be incorporated as a fixed and reasonable amount on the basis of estimated value of the purchase.

Some of the organisations incorporate a specific delivery schedule inter-alia mentioning that bids offering delivery beyond stipulated date will be treated as non -responsive and will be summarily rejected. However, after opening of the tenders, the bid by one of the organisations with slightly longer delivery period was not rejected as per the bid guidelines, rather that offer was also considered and evaluation was made after loading the offer by applying some unilateral loading criteria. The same resulted in inter se change of ranking position.

In order to meet the project requirement, it would be prudent to incorporate an acceptable range of delivery period with the stipulation that no credit will be given for earlier deliveries and offers with delivery beyond the acceptable range will be treated as unresponsive. Within this acceptable range, for the purpose of evaluation, an adjustment per month say @ 2% could be added to the quoted prices of bidders offering deliveries later than the earliest delivery period specified in the bid documents.

The evaluation/loading criteria on account of acceptable range of deviations in the commercial terms and conditions viz. Payment terms. Delivery period. Performance Bank Guarantee etc., is not being incorporated in the bidding documents. The evaluation of the offers is being made simply on the price quoted which is not in order. The comparative assessment of offers in true sense would be complete only if it is made on equal footing taking into account the financial implications for the deviations in terms and conditions, in line with unequivocal evaluation criteria specified in the bidding documents.

In one of the cases, it was noticed that due to non-stipulation of payment terms in the tender documents, the bidders quoted prices based on varying advance payment. The offers were evaluated by the Organisation simply on the quoted prices, even though L-1 bidder had asked for much higher advance payment in comparison to the L-2 bidder. As such, the evaluation done by the Organisation was not on equitable basis as the payment of higher advance, evidently had, financial implications.

The Evaluation / Loading criteria with respect to the important terms, like payment terms. Delivery period. Performance Bank Guarantee etc., having financial implications need to be specified in unambiguous terms in the bid documents so that the evaluation of bids after tender opening could be made in a transparent manner without any subjectivity.

Some of the Organisations incorporate only broad technical details instead of generic specifications with complete details of performance parameters and the technical evaluation criteria. At times the technical evaluation matrix is decided after opening of tenders and is kept confidential. In absence of the detailed specifications/technical evaluation criteria, the evaluation of offers on equitable basis and in a transparent manner would not be possible and would rather be prone to subjectivity in the decision-making. In one of the cases of hiring of coolers, the requirement was bifurcated into two categories viz ‘new cooler’ and ‘as good as new coolers’. Neither the quantitative requirement of each category of coolers nor the specifications had been ‘indicated for the category of ‘as good as new coolers’. Thus the description given was quite vague and susceptible to manipulation as it gave full leverage to the bidders to supply coolers of any vintage.

The detailed generic technical specifications including performance parameters and the technical evaluation criteria, if any need to be specified in the bidding documents in unequivocal terms.

The exemptions/reservation of a particular item which normally apply to SSI units are not being specified in the tender notice / bid documents. The applicable purchase preference to public sector enterprises as per the guidelines circulated by Department of Public Enterprises is also not being incorporated in the bid documents leading to lot of complaints from SSI/PSU.

The Government instructions on reservation of items and price preference to SSI Units and purchase preference to PSUs need to be incorporated in bid documents.

It has been noticed that some tenderers offer conditional discounts for coverage within a shorter period, for early inspection/ payment etc. and, such discounts are being considered, at the time of evaluation of tenders by the organisations.

It needs to be ensured that the evaluation of tenders should not be based on such conditional discounts and suitable clause should be included in the bidding douments.