PROCUREMENT@GOV Volume 1 Issue II | April 2016
NEWS UPDATE
Kelkar Committee Suggests Measures to Resolve PPP Projects India has about 900 PPP projects in different stages of development. As of December 2014, works worth about Rs. 12 trillion have been reported to be stuck. The Ministry of Statistics and Programme Implementation(MOSPI) who monitors Mega Projects of the value of over Rs.1000 crores value, has reported that about 40% of the projects have been facing Time and Cost over-run. The reasons for this range from land acquisition, lack of clearances, unfavorable market conditions, to costly finances. This has financiallly stressed both the banks and the developers. The Kelkar Committee Report on Revisiting and Revitalizing PPP Model for Infrastructure has suggested guidelines for re-negotiation of the terms of concession agreement, stipulating the reasons that form the basis for re-negotiation and those that should not be entertained as valid reasons. To facilitate re-negotiations, it has recommended setting up two- tier system of Multi Disciplinary Expert Groups for stalled PPP projects in form of Infrastructure Project Review Committee (IPRC) and Infrastructure Adjudication Tribunal (IPAT) headed by retired Supreme Court Judge or retired High Court Chief Justice) by a statute to be enacted under Article 323B of Constitution of India. PPG believes that while outcomes of recommendations are yet to be determined, there are many limitations in the recommendations themselves. Their acceptability vis-a-vis legal, ethical and microlevel functions are yet to be explored. While many problems of infrastructure projects are at macro-level which can be addressed by these suggestions, the micro level issues of contractor competencies, operation of internal review mechanisms, frameworks for addressing standing conflicts have not been effectively addressed.
Read the full article at http://www.thehindu.com/business/Economy/kelkar-chalks-out-rules-for-ppp-revival/article8037616.ece
EDITOR’S NOTE Welcome to the second issue of Procurement@Gov. In this issue, we bring you our regular features- a cover story, news update and a policy update. Additionally, we present to you a recent best practice from United Kingdom. A list of our forthcoming events is also provided. We look forward to receiving your views and suggestions. We would be delighted to receive your articles and comments on latest developments in the space of public procurement. Happy Reading!
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Volume 1 Issue II | April 2016
COVER STORY
Buying a dream K.P. Verma, President PPG
Burying new technology is like buying a dream. It is driven by the desire to have novelty, to have a product that is unique; sometimes it be driven by the vanity of the executive. Sometimes the desire overtakes rational analysis. The object of desire may be available in the market, may be in some different form or may be non- existent. Some examples of such buying may be a new computer controlled machine that shall enhance productivity, super fast passenger train (a bullet train), a new fighter plane; the list is endless. The object of desire necessitates procurement from a specified source. The Public Procurement system per se is about competitive bidding, it is specification driven and it is also about buying quality that is adequate for the purpose. It obviously was not designed to buy dreams because such purchases, by their very nature, shall not be priced competitively nor be of minimum quality. So how do we reconcile these two objectives, which appear diametrically opposite? The simplest solution would be to make the procurement non-competitive; Public Procurement does support single source buying if it is in public interest. In this scenario the onus of selection of the product, as well as the supplier, shifts to the user (indentor) who certifies that ‘this and this product alone, manufactured by this and this supplier alone’ shall meet the needs and objective of the purpose. This method is often used, and works well, for very high value equipments (e.g. fighter
plane, new generation locomotives etc). The decision to select the product, and the manufacturer by implication, is entrusted to a team of experts. What they recommend is approved by the orgnisation and then procurement from single source begins. So here the specification is what is given by the supplier. It obviously is a time taking process and may often take years before tenders are invited and procurement, in real sense, begins. The single source procurement also works for low end products (e.g. spares for machines, office furniture to maintain uniformity in office etc). The value of purchase is small. The user certifies why other product or manufacturer is not acceptable. It however does not work so well in the middle range where the user is not able (or reluctant) to certify uniqueness of product or why only a particular supplier can only do it. IT Products, Software in particular, come in this category. The need may be new, or even marginally unique, and the matching product may not exist, but there may be many suppliers competent to develop such software. It is also not possible for the buyer to give a complete specification. In the current system of procurement, the buyer chooses to invite bids and place contract on his specs (based on his needs/understanding of process) and keeps on tinkering with the specs even after the supply is made and put to use. Disputes between the suppler, who feels deprived of legimate revenue for the extra work/facility, and the buyers are common.
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Seen in this light the issue that is common over the whole range of such products (small value or mega value) is really writing of specification. But what do we do when we cannot write it fully and unambiguously? Performance based specifications also prove to be inadequate, The user does not comprehend, nor does he claim to know, the full operating range and capability of the product, which he tries to visualize. Here it ought to be remembered that the user has limited exposure to complexities of technology and that he is no match to the industry which specializes in designing and manufacturing the product. Their profession demands multidimensional capabilities in design; they need to produce newer and newer product and do it competitively. How do we get over this annoying, but persistent, situation? Is it possible to have a common procedure for items falling in all the ranges? It seems to be feasible but the concept of competitive bidding would need to be redefined – the buyer may insist on competition but he ought to rise above it after the procurement process has crossed
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a certain stage. What stage? That after which the buyer works with the chosen supplier only. The stage shall be predefined and safeguards would be ensured. Boundary conditions shall be fixed which must not be crossed by either party. This would be the most crucial stage of the entire procurement process. A pre requisite of such a system would be acceptance by the buyer of he lacks the technical competence to write specification for new technology items. It may hurt his pride of but is it not more honest to accept this fact and not copy spaces of firms? In the visualized scenario, the buyer would work initially with the likely supplier (or suppliers) to finalize his concept, decide on the specs and fix the boundary conditions. Then he works with the chosen supplier only. He would have elbow room to tweak the specs, within the boundary conditions, even after the contact is placed; that of course would be done with mutual consent and the buyer would pay for extra cost, if those costs arise. The concept calls for modifying the existing rules and procedures.
POLICY UPDATE
Conflicts in Dispute Resolution K. Choudhury, Member PPG
The Arbitration & Cancellation Act 1996 provides for the legal framework for dispute resolution in India. The Act specifies “how” disputes arising a contract should be resolved and “what” should be the procedure. However, provisions relating to Facilitation Council in the Procurement Policy under MSME Act 2006 provide for a separate framework for dispute resolution for MSMEs. These provisions, at some places, are in conflict with the Arbitration & Conciliation Act 1996. As a consequence many public organizations are facing difficulties in resolving litigation arising out of such conflict. While some of these cases were subsequently quashed by Delhi High Court, many such cases continue with different courts and state Facilitation Councils for MSME. There is a need to resolve the conflicts between the two Acts to enable “Ease of Doing Business”.
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Volume 1 Issue II | April 2016
BEST PRACTICE
‘Delays’ & ‘Compensation’ in Construction Contracts S.K. Manglik, Member PPG
The contractual provisions in Conditions of Contract are vague in dealing with issues of delays and levying of Liquidated damages. Society of Construction Law in UK has come out with a protocol on the subject with recommendations and guidelines to make provisions in the contract to minimize the Disputes on Delays. The details are briefly summarized here. Need for Overall Scheduling of the Project:The ‘Time of Completion’ in a construction Contract is a fundamental obligation of the Contractor, but Time and Cost over-runs result in majority of disputes particularly on account of recovery of Liquidated Damages by the Employer. To minimize number of disputes in large multi-disciplinary projects are planned, programmed and managed using the project management software ensuring control over the progress and completion of project. The Contractor should prepare and Employer should accept the program prior to commencement of the project. Contractor may provide an allowance for his risk coverage in the respective activities. Float: ‘Float’ is the amount of time by which an activity or group of activities may be shifted in time without causing delay to the contract completion date or milestone which may affect the other Contractor’s program linked to the overall completion of the project. The contentious issue is the ownership of Float. These are relevant in all activities related to ’Employer’s Risk Events’ and ‘Contractor’s Risk Events’.
Purpose of Extension of Time (EOT): The purpose of EOT is to relieve the Contractor of liability of liquidated damages (LD’s) for delay for any period prior to the extended date of contract completion date. The benefit to the Employer is that it establishes a new contract completion date. Entitlement to EOT for Employer’s Risk Events: The Contractor is entitled for EOT and compensation for the period the Employer’s delay reduces the float to below zero as envisaged in the approved program. Recommended Provisions in Conditions of Contract: While the responsibility of risk events can be identified by the project manager and incorporated in the Special Conditions of Contract, but the question arises should the Contractor have access to all the floats in the planned program of work?At the same time it appears to be unfair and imbalanced for the Employer to use up all the floats in the program network which is submitted by the Contractor and approved by the Employer. In case the Contractor has to own the floats, the wordings of the clause have to be modified such that the floats available in Contractor’s activities will be available to him in case there is delay in any of the activities resulting in the postponement of the planned completion date. It is suggested the following condition is stipulated in the Conditions of Particular Application: “Extension of Time (EOT) will be due whenever the Delay is on account of the causes specified in the
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relevant Clause of conditions of contract makes the Contractor’s planned completion date later than it would have been if it were not for that delay. Guidelines for Bidders: Alternatively in case the above mentioned amendments are not made, the bidders while preparing the program may add time for contingency for which he is the owner. It is necessary that while framing the bidding documents and preparing the bids care is taken to address the risks and provisions made clearly by the Employer and the Bidders preferably as separate activities in the program as Contingency. Assessing Quantum of Entitlement of EOT: The entitlement of EOT on account of concurrent delays and delays which are not concurrent are to be evaluated as under: 1. If Delays are not concurrent: Procedure for ascertaining appropriate contractual entitlement. Generally EOT should be granted to the extent that Employer Risk Event results in postponement of Date of Completion. Delays due to Contractor Risk
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Events should also be evaluated as these relate to recovery of Liquidated Damages. 2. Concurrent Delays: The delays occurring on account of Employer’s risk event and Contractor’s risk event occurring simultaneously and the effects of these are felt simultaneously are termed as Concurrent Delays. The several permutations and combinations are possible in the situations dealing with Concurrent delays. These can be summarized as under: ? The delay events of both parties start at the
same time but it can occur at any time after the Date of Completion.
? Delay Events start sequentially with a time lag. ? Delay Event occurs after the Completion Date
since the work is delayed for variety of events.
3. Effect of Delay: The effect of delay should be analyzed separately. Generally it is suggested to first analyze the Employer’s Delay which is to be compensated to the Contractor in the form of EOT followed by the Contractors Delay.
CASE STUDY
Payment Dilemma A telecom company in China sent enquiries to various firms in USA, if they could supply 2 km of optic fiber to a certain specification and if so quote the price and delivery details. A firm from Boston, USA responded that it could supply the said optic fiber at a price of 2 million US dollars CIF Shanghai within 3 months of the order confirmation. The purchaser responded accepting the offer and asked the supplier to go ahead. At the end of 2 months the Boston firm shipped the goods and the notified the purchaser and requested payment only after which they can mail the shipping documents. The
Chinese purchaser responded that since the shipment was CIF Shanghai, he will pay only after he receives the goods in Shanghai and accepts them after inspection. The seller responded that under international practices he should get the payment first, and refused to send the shipping documents.
Who do you think is right and why?
Please send your responses to pprocurementg@yahoo.com by May 31, 2016.
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Volume 1 Issue II | April 2016
FORTHCOMING PROGRAMS
TRAINING PROGRAM ON PROCUREMENT OF DRUGS JULY 6-8, 2016
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TRAINING PROGRAM ON PRINCIPLES & PRACTICE OF PUBLIC PROCUREMENT IN INDIA SEPTEMBER 28-30, 2016
FEE : Rs. 16,500 inclusive of service tax TO REGISTER, CALL +91-11-26192234 EMAIL pprocurementg@yahoo.com
ABOUT PPG
Public Procurement Group Public Procurement Group (PPG) is a non-profit organization, registered as a society in Delhi, India, working in the field of Public Procurement. The term public procurement covers all procurements made by the governments and their agencies, local bodies and other organizations that spend public money. The group recognizes an urgent need for reform of the entire public procurement regime, consisting of legal, institutional and procedural framework; and introduction of modern concepts and current technology, so that the public gets a better deal for its money.
OFFICE BEARERS R. Srinivasan CHAIRMAN
K.P. Varma PRESIDENT
The Public Procurement Group has been set up by professionals having long and rich experience in Public Procurement in International Organizations (e.g. The World Bank), Government of India (Railways, Public Works Department, Audit and Accounts, Law Department etc), and Public Sector Enterprises. The founder members held top most positions in their Organizations and worked at policy making levels.
S. M. Bhardwaj
The collective experience of the group is global; the members have experience of procurement systems of a number of developed and developing countries of the world.
EXECUTIVE DIRECTOR & EDITOR
SECRETARY
K. Chaudhury TREASURER
Himanshu Dube
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