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WELCOME CVOSANNUAL ZONAL REVIEW MEETING

SOUTH ZONE(II)

PRESENTATION BY

CTE’S ORGANISATIONCENTRAL VIGILANCE COMMISSION

23/01/2009

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Status of QPRs

• QPRs for September 2008 not received Goa Shipyard Ltd. Garden Reach Ship builders & Engineers Ltd. MIDHANI (Mishr Dhatu Nigam Ltd.)

• QPRs for September 2008 received late Mazagon Dock Ltd.

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Status of CTE InspectionsOrganization 2006 2007 2008

D/o Defence Production

BEML

Bharat Electronics Ltd.

Bharat Dynamics Ltd.

Goa Shipyard Ltd.

Garden Reach Shipbuilders & Engineers Ltd.

Hindustan Aeronautics Ltd.

Hindustan Shipyard Ltd.

Mazagon Dock Ltd.

MIDHANI (Mishr Dhatu Nigam Ltd.)

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The above table shows that CTEO is able to inspect very few works and many organizations have not been inspected at all. These organizations are executing lower value works. Therefore, there is a strong need for CVOs to conduct CTE type inspections of contracts in their organizations.

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Case Study 1• CTE Inspection

Inspection Report sent in December 2007. First reply received in December 2008.

• Abnormal delay in submission of first reply by CVO• Pre-qualification documents not produced. • CC flooring of work shop was damaged due to poor

quality.• Conditions for recovery of security deposit relaxed in

favour of L1.• All risk policy not taken by contractor.• Delay in work (23 months against 8 months).

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Case Study 2• CTE Inspection – April 2008

2 paras referred to CVO - August 2008. Investigation Report awaited.

• Abnormal delay in submission of investigation reports by CVO.

• Even reply to CTE inspection report awaited.• Appointment of consultant

Qualifying criteria was modified after technical evaluation from 70% to 80% restricting the competition from 3 bidders to single bidder.

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Check points for CVOs

• Publicity of tender on web-site.• Contractors are qualified strictly as per

PQ criteria.• Tenders are opened in presence of

bidders.• Decision on tenders within original

validity period.• Verification of Bank Guarantees.

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•No change in tender conditions after receipt of bids.• Tenders are sealed and page numbered.• Deployment of technical staff by bidder as per contract conditions.• Proper Insurance Policies.• General workmanship and quality of work with reference to line, level etc.

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MAJOR DEFICIENCIES OBSERVED DETAILED PROJECT REPORT (DPR)

• DPR NOT PREPARED AS PER SITE EQUIREMENT.• IFLATED ESTIMATE.• INCOMPLETE DETAILS PROVIDED IN THE DPR LEADING TO

DISPUTE AT EXECUTION STAGE.

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MAJOR DEFICIENCIES OBSERVED CONSULTANCY

• APPOINTMENT OF CONSULTANT IN A NON-TRANSPARENT WAY.

• SCOPE OF SERVICES NOT DEFINED CLEARLY.• UPPER CEILING FOR CONSULTANCY FEE NOT FIXED.• PAYMENT RELEASED WITHOUT AVAILING FULL SERVICES

FROM THE CONSULTANT.• OVER-PAYMENT MADE TO THE CONSULTANT.• PROFESSIONAL LIABILITY INSURANCE NOT TAKEN BY THE

CONSULTANT. • TECHNICAL MAN-POWER NOT DEPLOYED BY THE

CONSULTANCY FIRM AS PER THE CONTRACT PROVISION.

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MAJOR DEFICIENCIES OBSERVED CONSULTANCY

• TECHNICAL STAFF CHANGED FEEQUENTLY.• AS PROJECT MANAGEMENT CONSULTANT(PMC)-– ALLOWED USE OF MATERIALS FROM UN-APPROVED

SOURCES.– ALLOWED EXECUTION OF SUB-STANDARD WORK. – CLEARED SUB-STANDARD WORK FOR PAYMENT.– PROPER MEASUREMENT NOT RECORDED.– QUALITY TESTS NOT CONDUCTED AS PER

CONTRACT/CODAL PROVISION.

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DEFICIENCIES OBSERVED TENDER DOCUMENTS

• CONTRADICTORY AND AMBIGUOUS PROVISIONS MADE IN THE TENDER DOCUMENT.

• PROVISION IN THE TENDER DOCUMENT NOT AS PER POLICY GUIDELINES.

• DRAFT TENDER DOCUMENT NOT APPROVED BY COMPETENT AUTHORITY.

• CLAUSES TO DEAL WITH AMBIGUITIES NOT PROVIDED IN THE TENDER DOCUMENT.

• NON-RELEVANT DOCUMENTS AND PROVISIONS PROVIDED IN THE TENDER DOCUMENT.

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DEFICIENCIES OBSERVED PRE-QUALIFICATION

• PRE-QUALIFICATION CRITERIA MADE UNDULY STRINGENT AND THEN RELAXED DURING PQ EVALUATION, SINCE VERY FEW BIDDERS WERE MEETING THE NOTIFIED CRITERIA.

• PQ CRITERIA FIXED AFTER OPENING OF THE PQ OFFERS.

• PQ CRITERIA NOT APPLIED UNIFORMLY TO ALL THE OFFERS.

• PQ CRITERIA MADE TO SUIT THE PARTICULAR FIRM(S).

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DEFICIENCIES OBSERVED INVITATION OF BIDS

• TENDERS INVITED IN A NON-TRANSPARENT MANNER WITHOUT PROPER PUBLICITY.

• TENDER NOTICE AND COMPLETE TENDER DOCUMENT IN THE DOWNLOADABLE FORM NOT UPLOADED IN THE WEB-SITE.

• SHORT NOTICE TENDERS INVITED WITHOUT ANY REAL URGENCY.• BID INVITED ON NOMINATION BASIS EVEN THOUGH THERE IS NO

URGENCY AND NUMBER OF POTENTIAL BIDDERS ARE AVAILABLE.• LIMITED TENDERS INVITED FROM OLD PANEL.• AUTHORITY TO RECEIVE THE BIDS AND PLACE NOT NOTIFIED

PROPERLY.

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DEFICIENCIES OBSERVED EVALUATION OF BIDS AND AWARD OF CONTRACT

• UNDUE DELAY IN EVALUATION OF THE BIDS AND AWARD OF THE CONTRACT.

• AMBIGUITY IN THE BID NOT DEALT AS PER PROVISION IN THE TENDER DOCUMENT AND UNDUE FINANCIAL BENEFIT RUNNING INTO CRORES OF RUPEES EXTENDED TO THE LOWEST BIDDER.

• CURRENT MARKET RATE ANALYSIS OF THE RATE NOT DONE TO ASSESS THE REASONABLENESS OF THE LOWEST BID.

• WORK AWARDED AT MUCH HIGHER COST THAN WHAT COULD BE JUSTIFIED BASED ON THE CURRENT MARKET RATES.

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DEFICIENCIES OBSERVED COMPLIANCE OF THE CONTRACT CONDITIONS

• CONTRACT DOCUMENT MADE AT VARIANCE WITH THE TENDER DOCUMENTS, RESULTING INTO UNDUE FINANCIAL BENEFIT TO THE CONTRACTOR.

• IN ‘DESIGN AND CONSTRUCT’ CONTRACT, PROFESSIONAL INDEMNITY INSURANCE NOT TAKEN BY THE CONTRACTOR, RESULTING IN UNDUE FINANCIAL BENEFIT TO THE CONTRACTOR BY WAY OF SAVING OF PREMIUM AMOUNT BESIDES DISADVANTAGE TO THE ORGANIZATION.

• VARIOUS OTHER INSURANCE POLICIES SUCH AS ‘CONTRACTOR’S ALL RISK POLICY’, THIRD PARTY INSURANCE, PLANT AND MACHINERY INSURANCE, WORKMAN’S COMPENSATION POLICY ETC. NOT TAKEN BY THE CONTRACTORS.

• BANK GUARANTEES SUBMITTED BY THE CONTRACTORS NOT VERIFIED INDEPENDENTLY FROM THE ISSUING BANK.

• WORK DELAYED UNDULY AND NO ACTION TAKEN AGAINST THE CONTRACTOR.

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DEFICIENCIES OBSERVED QUALITY

• CONTRACT PROVIDED FOR DESIGN MIX CONCRETE, WHEREAS AT SITE BATCHING PLANT OR OTHER WEIGHING MECHANISM NOT INSTALLED AT SITE, RESULTING IN POOR QUALITY OF CONCRETE.

• SUB-STANDARD MATERIALS USED IN THE WORK.• POOR QUALITY OF SHUTTERING USED RESULTING IN

BULGING ETC. IN THE CONCRETE STRUCTURES.• CONCRETE PLACEMENT AND COMPACTION NOT DONE

PROPERLY RESULTING INTO HONEYCOMBING IN THE CONCRETE STRUCTURE.

• REINFORCEMENT NOT PLACED PROPERLY. • MATERIAL FOR UNAPPROVED SOURCES USED IN THE WORK.

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CHECK POINTS FOR PRE-TENDER STAGE

1. FEASIBILITY STUDY IS DONE.2. PROJECT IS DULY SANCTIONED.3. DETAILED PROJECT REPORT(DPR)/ESTIMATE IS VETTED AT

APPROPRIATE LEVEL.4. CONSULTANTS ARE APPOINTED IN A TRANSPARENT MANNER.5. DRAFT TENDER DOCUMENT IS VETTED AT APPROPRIATE LEVEL.

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CHECK POINTS FOR TENDER STAGE

1. TRANSPARENT PRE-QUALIFICATION CRITERIA AND EVALUATION AS PER NOTIFIED CRITERIA.

2. PQ EVALUATION IS BASED ON DOCUMENTARY PROOF.3. MODE OF TENDER(OPEN,LIMITED OR NOMINATION BASIS) AS PER ORGANISATION’s

POLICY.4. TRANSPARENCY IN PREPARATION OF PANEL & REGULAR IN CASE OF LIMITED

TENDERS.5. ADEQUATE / WIDE / WEB PUBLICITY.6. OPENING OF TENDERS IN PRESENCE OF BIDDERS.7. BIDS OPENED ARE SIGNED BY ALL THE MEMBERS OF TENDER COMMITTEE AND ALL

THE CORRECTIONS IN THE BIDS ARE ATTESTED &SUMMARISED BY TENDER COMMITTEE.

8. BIDS EVALUATED PROPERLY AND AMBIGUITIES ARE DEALT AS PER PROVISION IN THE TENDER DOCUMENT.

9. ON THE SPOT SUMMARY OF BIDS. 10. CONDITIONS OF THE TENDER ARE NOT ALTERED AFTER OPENING OF PRICE BIDS11. TENDER FILE IS PAGINATED & CUSTODIAN NOMINATED.

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CHECK POINTS IN EXECUTION STAGE

1. AGREEMENT IS AS PER THE BID ACCEPTED.2. AGREEMENT IS SIGNED & SEALED PROPERLY.3. BANK GUARANTEES ARE VERIFIED AND TIMELY RENEWED. 4. CONDITIONS REGARDING INSURANCE POLICIES,

PERFORMANCE GUARANTEES, LABOUR LICENCE etc. ARE COMPLIED.

5. NO UNWARRANTED DEVIATIONS DONE.6. VARIOUS RECOVERIES ARE MADE AS PER CONTRACT.7. PROPER RECORD OF HINDRANCE MAINTAINED.8. TECHNICAL STAFF DEPLOYED AS PER CONTRACT PROVISION.9. MANDATORY TESTS CARRIED OUT.10. SAFETY MEASURES IMPLEMENTED AS PER CONTRACT.

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South Zone (23.01.2009)• Indian Navy awarded a contract to an organisation

here, for procurement of propulsion system for re-engineering of ‘Ajay class’ ship by replacing the Russian engines with MTU make engines.

• The organisation in turn awarded a contract to M/s MTU, on nomination basis with whom they have a general cooperation agreement, for supply of above propulsion system excluding installation, commissioning etc. Both the contracts were processed simultaneously and were concluded almost at the same time in Aug 2005.

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South Zone (23.01.2009)• Proper purchase procedure has not been followed in this case

as may be seen from the following:-• M/s MTU were associated with this project from the initial

stage itself.• M/s MTU only carried out both-- pre-feasibility and feasibility

studies. Prior to pre-feasibility study, MTU had also carried out an initial feasibility study on the basis of which only, the proposal for replacement of Russian M 521 engine with MTU 16V 1163 engine was initiated

• By contacting only MTU, the competition was eliminated from the very beginning itself.

• MTU cannot be expected to recommend propulsion system / engine of any other make except their own.

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South Zone (23.01.2009)• There was no formal offer from M/s MTU

for the supply of propulsion system. M/s MTU gave a budgetary offer in March '03 i.e. before completion of feasibility study. This was revised in Feb '04.

• Further revisions were made in March and April '04. The order on MTU was placed on the basis of these budgetary quotations.

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South Zone (23.01.2009)• No indent was raised either by Indian Navy or by

the organisation, internally. Organisation informed that Indian Navy's tender enquiry dated 29.9.2004 issued to them was treated as indent.

• It is noted that this so called indent (tender enquiry) was issued by Navy in Sept '04 while the offer from M/s MTU was already received by GRSE in March '03 / Feb '04 itself.

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South Zone (23.01.2009)

• No formal tender enquiry was issued to M/s MTU. It was informed that a copy of RFP dated 29.9.2004 (issued to organisation by Indian Navy) was also handed over to MTU by NHQ. This could not be verified in the absence of relevant records.

• While RFP was issued on 29.9.2004, M/s MTU it is seen, had already submitted their offer in March '03 / Feb '04.

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South Zone (23.01.2009)

• As MTU were unable to get the required information from ALMAZ - the original designer of class 1241 PE ships for carrying out the feasibility study, a contract was entered into between the organisation and M/s ROSOBORONEXPORT, for supply of requisite information/documents at a cost of US $ 76,000/-. The reasonableness of above price paid to ROSOBORONEXPORT was also not established.

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South Zone (23.01.2009)

• Though the procurement was made on nomination basis, no proprietary article certificate (PAC) was furnished either by Indian Navy or by the organisation. Organisation informed, that Indian Navy's contract dated 10.11.2000 on them for feasibility study and MOD (Navy) letter dated 17.6.2005 conveying Govt. sanction for procurement of propulsion package from them can be treated as PAC.

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South Zone (23.01.2009)

• It is noted that while the Govt. sanction is dated 17.6.2005, technical, commercial and price negotiations had been held with MTU on 1st & 2nd March 2005.

• Thus procurement process was almost complete even before, receipt of said PAC (Proprietary Article Certificate).

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South Zone (23.01.2009)• No minutes of PNC meeting held on 1st & 2nd

March 2005 with MTU have been recorded. • A copy of letter dated 2nd March 2005 given

by MTU offering the final price of Euro 6,418,000/- and countersigned by three officers of the organisation was shown as minutes of PNC during inspection.

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South Zone (23.01.2009)

• 15% interest free advance payment amounting to Euro 962,700/- (Rs.5.40 crores approx) has been made to MTU though no mobilization of any equipment at site is required by the contractor.

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South Zone (23.01.2009)• In another organisation present here, the

Time of submission of bids and date and time of opening of bids was not indicated in the tender enquiry. Technical bids were also not opened in presence of bidders’ representatives. Though the due date of submission of bids was 22.12.2001, the technical bids were opened only on 4.1.2002.

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South Zone (23.01.2009)• Of the 3 vendors short listed by the Weapon

Selection Committee to whom Tenders were issued, one M/s D of South Africa regretted saying that they do not manufacture Air to Air Missile System (ATAM system) for helicopter applications.

• ATAM system of another vendor M/s F was also not found suitable during field demonstration trials at vendor’s site.

• Thus, organisation was finally left with only one vendor, M/s M, of France.

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South Zone (23.01.2009)• Short listing of vendors was not done in a

proper manner. The capabilities of the short listed vendors to deliver the required system were in doubt.

• Under such circumstances, right course of action would have been to invite an open/global ‘Expression of Interest’ under intimation to aforesaid three short listed vendors.

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South Zone (23.01.2009)• Offers of two vendors were found to be

technically acceptable by the Technical Evaluation Committee in its report of Aug’04 submitted after the field demonstration trials.

• The Weapon Selection Committee, in its meeting held on 20.8.04, recommended to induct Mistral Missile System due to its operational superiority demonstrated during field trials.

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South Zone (23.01.2009)• The parameters that were considered for

operational superiority viz. seekers field of view, launch envelope for targets crossing over, man machine interface, missile cooling time per bottle and availability of air borne aid, were neither specified in the tender enquiry nor intimated to the vendors at any time subsequently, not even during demonstration of field trials.

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South Zone (23.01.2009)• If these parameters were so important, the

same could have been incorporated in the technical requirements specified in the tender enquiry. One offer was rejected on the basis of unspecified parameters without even giving him an opportunity to meet these operational requirements.

• The selection process of Missile System, as such, does not appear to be transparent.

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South Zone (23.01.2009)• No payment terms were specified in the

tender enquiry. • As per contract, 15% interest free advance

payment has been made on 30.8.2006 after issue of purchase order and further 15% payment has been made on 29.10.2007. 30% payment has been released to the firm without achieving any milestone whereas the supplies are expected only in 2009.

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South Zone (23.01.2009)• An organisation awarded contracts in Nov.06

to M/s K , @ Pune at a cost of Rs.12.15 crores and Rs.34.98 crores respectively for supply, installation & commissioning of oxygen and nitrogen charging systems for Sukhoi Su-30 aircraft. This case was intensively examined at Nashik during Sept’ 2008.

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South Zone (23.01.2009)• Apart from M/s K , many other vendors were also

contacted by the organisation for development of indigenous oxygen / nitrogen charging stations. Some of these vendors had evinced interest in developing these systems and had also submitted their proposals. However, further details as to whether these proposals were deliberated, and if so, why these proposals could not be considered further and why finally only M/s K were selected for development of theses items, could not be found in the records produced during inspection.

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South Zone (23.01.2009)• While the existing Russian make Oxygen and Nitrogen

Chargers were loaned to M/s K for a period of three months for studying these equipments vide Air HQ letter dated 6.9.2001, a similar opportunity was not given to other vendors who had also shown interest in developing these items.

• other vendors were not even allowed to inspect the existing Russian units at the Air Force Stations. Allowing M/s K to take the existing units on loan for three months for a detailed study but not allowing other vendors to even inspect theses units at site is indicative of special favour to M/s K.

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South Zone (23.01.2009)• For Nitrogen chargers, quotation was invited only

from M/s K as they had exclusively developed this unit in coordination with IAF/ organisation in the past. Air HQ did not issue any proprietary article certificate (PAC) in favour of M/s K and when organisation requested Air HQ to certify M/s K as “Customer nominated Source”, Air HQ refused to do so.

• No PAC in favour of M/s K was thus obtained by organisation from Air HQ for development and supply of 11 Nos. nitrogen chargers initially ordered on M/s K on single tender basis.

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South Zone (23.01.2009)

• For the subsequent procurement of 16 nitrogen chargers also, instead of calling for PAC from Air HQ, organisation themselves issued a PAC in favour of M/s K . Moreover, this PAC was issued on 21.4.06 whereas the tender enquiry was already issued in Aug’05 itself.

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South Zone (23.01.2009)

• M/s K had submitted advance payment bank guarantees and performance bank guarantees as per the contractual terms.

• However, genuineness / authenticity of these bank guarantees were not verified by HAL from the issuing Bank.

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South Zone (22.01.2009)

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