PARADIGM SHIFT IN THE TENDER PROCESS OF INFRASTRUCTURE PROJECTS IN INDIA: A CRITICAL ANALYSIS

I. INTRODUCTION

Recently the Government of India augmented the National Infrastructure Pipeline, planning to spend 1.4 trillion US Dollars on different projects in infrastructure sectors¹. It is incumbent that the execution and implementation of such a huge project requires the participation of the private sector from both domestic as well as the international community. Following the announcement of the 1.4 trillion US Dollars National Infrastructure Pipeline, the Ministry of Finance introduced “General Instructions on Procurement and Project Management” on 29th October 2021² (hereinafter referred to as the 2021 Guidelines). The 2021 Guidelines aimed at reforming the existing procurement and project management rules and procedures in the execution of public projects which have been plagued for a long time by Cost and time overruns. The Ministry of Statistics and Programme Implementation has confirmed that as of November 2021, 439 out of 1679 infrastructure projects have been affected by cost overruns, aggregating to Rs 4,38,049.58 crores, and 541 projects are delayed³. The present article tries to critically examine the 2021 Guidelines on the scale of cost and time overruns suffered by various infrastructure projects in India.

II. APPLICABLE RULES ON PUBLIC PROCUREMENT

The Constitution of India explicitly empowers both the Union and a State to “make any grants for any public purpose”⁴. Further the Union and a State are also empowered by the Constitution to execute a contract through the President or a Governor respectively ⁵ and the breach of which entails the right to sue the respective government. ⁶ There are no statutory enactments per se which govern the Public Procurement Framework in India. However, different government departments have published multiple procurement rules and policies providing comprehensive provisions for Public Procurement.

The General Financial Rules, 2017 (GFRs) are the general rules of the Government of India (GOI) which is to be followed by all Government Ministries / Departments while dealing with matters involving public finances. Further the Manual for Procurement of Goods, 2017 contains guidelines for the purchase of goods, and the Delegation of Financial Powers Rules, 1978 delegate the government’s financial powers to various ministries and subordinate authorities. These enactments are general in nature and primarily govern the procurement of goods by Government departments.

Unlike procurement of goods by government bodies, Public Private Partnership (‘PPP’) projects require higher level of responsibility to ensure economic efficiency, transparency, fair and equitable treatment of all the bidders. Therefore, keeping in mind the PPP projects, the Government of India supplemented the aforesaid guidelines and rules with the 2021 Guidelines governing procurement by individual ministries/departments, such as defence, telecom, airports, ports, and railways.

III. CHANGES INTRODUCES UNDER THE 2021 GUIDELINES TACKLING THE ISSUE OF TIME AND COST OVERRUN

a. Abolishing Rejection of Single Bid Practice

One of the major changes brought by the 2021 guidelines is parting away with the practice of rejecting single bid⁷. It was a practice among the employers to cancel or withdraw the tenders which result in single bids and to go for re-tender. This becomes a continuous process and stops only when the tender receives more than one bid. This practice has contributed majorly to the time and cost overruns. Also, it causes a delay in the execution of the work with consequent delay in the attainment of the purpose for which the project was envisaged. Needless to say the execution of work would be with an escalated cost. Even when only one Bid is submitted, the process should be considered if conditions in the RFQ or RFP are satisfied.

b. Introducing Quality-cum-Cost based Selection for Procurement of Works

One of the fundamental limitations of infrastructure projects in India is the tendering guidelines which state that contracts must go to lowest bidder. However, solely relying on lowest bidders is not an efficient policy for awarding tender involving huge commercial value. Even NITI Aayog stated that the lowest bidder is not suitable in all the scenarios and came up with a variety of alternatives to use in the procurement process. The 2021 Guidelines revised earlier guidelines and extended the Quality cum Cost based Selection (QCBS) for procurement of works and non-consultancy services⁸. Unlike the lowest bidder, QCBS evaluates a bidder based on a combination of technical and quality scores. However, the maximum weightage for non-financial parameters cannot exceed 30%. The Guidelines allow procurement agencies to use QCBS where the procurement has been “declared to be a quality oriented procedure by the competent authority” and where the estimated value of procurement does not exceed Rs. 10 Crore.

In India, the ‘Lowest Bidder’ (L1 system) method has been followed for a long period of time for the award of tenders. Meaning thereby awarding the contract to the bidder quoting the least amount for the completion of the project. Though the L1 system ensures that the least cost is incurred for the project, however the quality of work and other relevant consideration is often overlooked. Hence, the L1 system is no doubt not the best method for public procurement, especially for infrastructure projects that require a high level of technical expertise. The introduction of QCBS by the 2021 Guidelines is a welcome move ensuring that complex infrastructure projects offer the desired value for money, without compromising on the quality of the works. Having said that, most of the infrastructure projects exceed the QCBS threshold of Rs. 10 Crore. Hence, the same should be increased to allow more projects to be awarded through this route. Similarly, while evaluating the bid, the weightage given to the quality score should be further increased from 30% to at least 50%.

c. Introducing Fixed Budget based Selection for Consultancy Services

Fixed Budget Selection (FBS) is the method used for the evaluation of consultancy services in which the bidder with the best technical bid which is within the procuring and disposing entity’s budget is recommended for award. GFRs 2017 provide three methods for the selection/evaluation of consultancy proposals which is Quality and Cost Based Selection (QCBS), Least Cost System (LCS) and Single Source Selection (SSS). The 2021 Guidelines introduced the fourth method which is Fixed Budget Selection⁹ wherein the cost of consulting services shall be specified as a fixed budget in the tender document itself. The fixed budget contract though is a welcome move to tackle the issue of cost overrun, the success of this method largely requires a contract with a clear and well-defined scope of the work as well as strict adherence to the timeline. Presently, employers use adapted versions of standard contracts, such as those of the International Federation of Consulting Engineers. This approach often results in clauses that are ambiguous and leave room for dispute.

IV. CONCLUSION

India attracted the spotlight of the international community recently by overtaking Britain to become the world’s 5th largest economy^{10. Such an achievement is the result of India’s increased impetus to develop the infrastructure in the country. Continuous growth not only in investments, but also in policies is required for India to become the largest economy in the world. The 2021 Guidelines is a right step towards reforming the tender process in the PPP infrastructure projects and to encounter the cost and time overruns that have been plagued India’s infrastructure sector since long time}