Public Procurement Bill 2012 - Benefits and Improvements

Question - The Public Procurement Bill 2012 is an attempt to formally legalise the nation’s public procurement system. Discuss the benefits of well implemented procurement policy and examine the areas where the Bill can be further improved.

During the 2015-2016 Budget Speech, the government indicated it would move towards formalisation of the public procurement system in India. Ministry of Finance has therefore sought to refine the Public Procurement Bill 2012.

About the Bill

• This Bill covers ministries or departments and PSUs of Union government or any company in which government owns a stake of greater than 50%.

• Procurement processes of the states and local governments are not under the aegis of the Bill.

• The Bill aims at improving transparency in procurement through central government and associated entities

• It provides exemption in procurements for disaster, security or strategic purposes plus those below INR 50 lakh

• Government can also exempt any procurements or procuring entities from provisions of the Bill in public interest, as per the Bill

• The Bill also lays down a code of integrity for officials of procuring entities plus bidders.

• Bill empowers government and procuring entity for debarring bidders under specific conditions

• Central Public Procurement Panel is proposed for publication of procurement data

• Bill has established Open Competitive Bidding as a procurement method and entities must provide reasons for choosing any other; conditions and procedure for use of these methods are also mentioned

• Bill stipulated establishment of Procurement Redressal Committees

• Such committees can help an aggrieved bidder.

• Bill penalises acceptance as well as offering of bribes for procurement

• Bill exempts certain procurements from specified process and allows government to limit competition in specific cases

• Certification from technical expert is not needed in case procurement from certain supplier is needed to ensure standardisation of systems, as per the Bill
• Bill does not limit use of cost plus contracts which do not provide incentives for efficiency

Benefits

Well designed and effectively implemented procurement policy has the following benefits:

• Fiscal savings from yearly procurement expenditure

• Generation of much required fiscal space

• Enhanced flexibility for channeling government expenditure into areas enhancing growth

• Move towards rule based institutional procurement

Areas of Improvement

• At present, the Bill’s objectives are too complex and this hampers accountability. A simpler, easily defined set of objectives would be preferable

• This would also help the internal and external auditing agencies

• Also, the Bill’s definition of procurement process indicates post tendering steps are not included in the procurement process; definition should be expanded to include post tendering procedures such as contract management, monitoring, payment and so on.

• Judicial delays and lack of economic literacy is another feature of procurement redress committees which must be avoided

• International practice holds that there should be a nodal procurement agency; It should be clarified if Central Purchasing Organisation is such an agency

• Decentralised procurement processes are another important goal the Bill must attain

• Bill is currently not applied for lower than INR 5 million. Emergency procurements for disaster management and national security are also excluded; Basis for discretion for procurements below INR 5 million are not defined. Corresponding procedures for such procurements should be defined.

• The Bill gives permission to procuring entity to restrict competition to attain objectives; it also exempts certain procurements form provisions in the legislation such as transparency requirements in public interest. Therefore, to get transparency in case of limited competition, other requirements such as advance contract award notice and risk management should be added

• Moreover, data management capabilities and standardisation must be improved

• Bidders and procuring agencies have significant data and information needs are there for making the procurement system transparent

• 2012 Bill has close to 20 references to rules; general principles on which rules are based should be clearly defined to ensure coherence, credibility and flexibility

• Professionalism in procurement processes is another area where the Bill needs improvement

• Capacity building to formulate specific skill sets in officials and organisations seeking procurement contracts is a must; Bill should work in this direction

Facts and Stats

• Crude estimates of potential savings introduced by the Bill range between 1.2 to 0.6% of GDP based on the extent of efficiency attained

• This could help in meeting revenue deficit of 2.9% of GDP projected by budget for 2014-2015

• Savings would be more if the States whose expenditure equals the Union government and public enterprises could go through similar procurement reforms.