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Country Updates – June 2022

Monday 27 June 2022

INDIA

New parameters on public procurement and project management

Gagan Anand

Introduction

The Central Vigilance Commission (CVC), the Comptroller and Auditor General (CAG) of India and the  National Institution for Transforming India (NITI Aayog),1 in cooperation with the Ministry of Finance2 (MoF), have opened the way to the reorganisation of procurement and project management in India.

India’s infrastructure has always been sluggish in terms of cost and time overruns and delays, necessitating a review of procurement and project management methods. The CVC, CAG and the NITI Aayog examined various public procurement and project management procedures and rules, which were implemented by central public authorities, and recommended changes to strategies to address current and future public procurement challenges. The rules were developed under the guidance of the CVC after a thorough consultation process that included experts from a variety of public procurement and project management disciplines. Thereafter, on 29 October 2021, the Ministry of Finance issued the General Instructions on Procurement and Project Management (the Instructions). ‘These instructions strive to bring novel standards for speedier, more efficient, and transparent project execution into the sphere of public procurement in India,’ the Ministry stated.

For the government and its agencies, completing public projects on schedule, under budget and to a high standard has always been a concern and a difficulty. The importance of procedure and norms, as well as the incentives and disincentives they produce, should be carefully examined as the government seeks to accelerate economic development.

Sketch of the Instructions

Methods of procurement

For projects where quality characteristics are to be given weightage, the quality cum cost-based selection (QCBS) technique has been established as an alternative to the traditional L1 (lowest bidder) system. The Instructions allow procurement agencies to use QCBS if the procurement is ‘claimed to be a quality focused procedure by the competent authority’ and the projected value of the procurement is less than INR 100m. For international competitive bidding, QCBS is the favoured method. QCBS is used to pick bidders for transportation infrastructure projects, roads and other projects for non-consulting services3 where the bidder possesses both technical abilities and is competent to improve the public–private partnership. As a result, when the competent authority declares the procurement as a ‘quality-orientated procurement’, this method of evaluating offers is favoured. QCBS, the least cost system and single source selection are the three ways of selecting consultancy bids now included in the General Financial Rules 2017 (GFR). This list now includes one more way: fixed budget-based selection (FBS), which can now be used to shortlist consultancy offers. In FBS, the cost of consulting services is indicated as a fixed budget in the tender document itself. It should be noted that Rule 192(iv) of the GFR allows non-financial characteristics to receive up to 80 per cent weighting in the purchase of consultancy services.

Preliminary project report (PPR) presentation

The purchasing entity may create a PPR in accordance with the Manual of Procurement of Works 2019 to determine the viability of a project, which may then be presented to the public authority for an overall assessment of the situation, viable choices and mitigation measures. A presentation to the head of the public authority may be made in the event of big projects. The transcript of the presentation’s talks may be included in the detailed project report (DPR) and the tender documentation/project record.

Presentation of the DPR

Once a project has been approved by the public authority, a DPR shall be developed and delivered to the authority for projects over a certain threshold value, as established by the project executing agency (PEA). A presentation to the head of the public authority may be made in the event of very significant projects. This presentation will give the public authority an overview of the project’s key elements, such as the general layout, project team composition, contractor obligations, key milestones and potential risks and mitigation strategies. The documentation/project record will include a record of the discussion that took place during the presentation.

Land availability and statutory permissions

The primary conditions for starting a project are the availability of land and the acquisition of essential clearances. Because it is not always practicable (or even prudent) to have the full land before awarding the contract, the Instructions state that a minimum amount of encumbrance-free property must be made available before the contract is awarded. In addition, public authorities and the PEAs should plan for and closely monitor the project’s progress in acquiring the essential clearances.

Pre-tender activities

To avoid delays in implementation, the Instructions state that architectural and structural drawings must be completed before tenders are invited.

Tender documents

Tender documents serve as the foundation for the public procurement process and become part of the contract once the tender has been awarded. Given the importance of tender documents, the Instructions include provisions such as:

• The tender document’s provisions/clauses should be clear to avoid ambiguity, potential cost and time overruns and quality compromises.

• Project milestones should be recognised in a sequential and optimal manner.

• General contract conditions should not be changed unless special contract conditions are specified.

• Customisation of eligibility criteria for bidders, commensurability of payment terms with work done, quality assurance plans and other quality assurance measures should be considered.

Project management

Another important factor is time, which the Instructions suggest should be used to migrate to IT-based solutions. They put the emphasis on electronic measurement books or other modalities to assure efficiency, transparency and superior outputs while carefully reviewing progress and keeping an eye on schedules.

Provision of payment of interest on delay in payment of contractors’ bills should be made within 30 working days.

Finally, if the provision of payment of interest is not within the given timeline, then proper explanation must be given to the concerned officers.

Contracts for engineering, procurement and construction (EPC)

Because the execution framework in the tender documents is so important to the success of an EPC contract, the Instructions have clarified the following:

• contractor’s payment milestones should promote smooth cash flow and job progress;

• the tender documents should only include: general arrangement drawings and architectural control parameters;

• contractor’s submission of drawings and the competent authority’s approval of those drawings (including penalties for non-adherence to timelines);

• technical specifications that allow the contractor to optimise the design; and

• important commercials such as the contractor’s obligations, the parties’ risk matrix, the latent defect liability period, the procedure for scope changes, liability limitations and damages, and so forth.

Arbitration and dispute resolution

The instructions also rule out litigation as the first resort in case of any dispute that arises in the implementation of projects. As litigation has unfavourable implications on the timelines and overall cost of the project, the Instructions direct officials to proceed with discussion, mediation and consultation before resorting to arbitration/litigation.

Conclusion

The Instructions cover all aspects of a public procurement/project cycle and prescribe best practices for addressing inefficiencies. They will undoubtedly improve India’s public projects landscape if implemented with the same rigour and spirit. The Instructions will aid in the introduction of novel standards for project execution that are speedier, more efficient, and transparent in India’s public procurement sector. They will enable executing agencies to make judgments in the public interest that are faster and more efficient.

Only the federal government and its departments are affected by the new Instructions. Hopefully, states will see the value of the rules and put them in place at the regional level as well. The states of India account for more than half of all public bids in the country; such initiatives will not only increase the quality of work being done, but will also set new standards for bidders to demonstrate potential project execution results. It would also contribute to the achievement of Digital India’s4 aim by simplifying and standardising the digitalisation of public procurement.

Notes

1 NITI Aayog, ‘Measures to revive the Construction Sector’, 6 September 2016.

2 Department of Expenditure, ‘Office Memorandum: Insertion of Rule 227A in General Financial Rules (GFRs) 2017 – Arbitration Award’, 29 October 2021.

3 ‘Non-consulting services’ are defined as any subject matter of procurement (as distinguished from ‘consultancy services’) that involves physical and measurable deliverables/outcomes, where performance standards can be clearly identified and consistently applied, other than goods or works, except those incidental or consequential to the service, and includes maintenance, vehicle hiring, and outsourcing of building facilities.

4 See www.digitalindia.gov.in. Digital India is a flagship programme of the Indian government with a vision to transform India into a digitally empowered society and knowledge economy.

Gagan Anand is an advocate and the managing partner of Legacy Law Offices at New Delhi and can be contacted at anand@legacylawoffices.com.