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Public Procurement 2011

Published by Global Legal Group withcontributions from:

Arntzen de Besche Advokatfirma ASArzinger

Ashurst LLPBech-BruunBorenius & KemppinenDebarliev, Dameski & Kelesoska Attorneys at LawDLA Phillips FoxFried Frank Harris Shriver & Jacobson LLPGarayar Asociados Abogados, S.L.Georgiev, Todorov & CoGÖRG Partnerschaft von RechtsanwältenGrasty Quintana Majlis & CiaHeenan Blaikie LLP

Hergüner Bilgen ÖzekeJ. Sagar AssociatesLambadarios Law FirmLee & KoLETLAWM. & M. BomchilMamo TCV AdvocatesMannheimer Swartling Advokatbyrå ABMatheson Ormsby PrenticeMeitar Liquornik Geva & Leshem Brandwein, Law OfficesPachiu & AssociatesRui Pena, Arnaut & Associados

SchoenherrStibbeTozziniFreire AdvogadosVarul Vilgerts SmaliukasWigley & Company

The International Comparative Legal Guide to:

A practical cross-border insightinto public procurement



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Chapter 17

103

J. Sagar Associates

India

1 Relevant Legislation

1.1 What is the relevant legislation and in outline what doeseach piece of legislation cover?

At the apex of the Indian legal framework governing public

procurement is Article 299 of the Constitution of India, which

stipulates that all contracts made in the exercise of the executive

power of the Union of India, or by a State Government, shall be

made in the name of the President of India or by the Governor of

the State, as the case may be, and be executed on behalf of the

President or the Governor by such person as he may direct.

The Indian Contract Act, 1872 and the Sale of Goods Act, 1930 are

the major Legislations governing contracts of sale/purchase of

goods and services in general.

At the federal level, there is no legislation exclusively governing public procurement of goods in India, though at the state level

certain state legislatures (like Tamil Nadu) have enacted such laws.

However, comprehensive rules and directives have been put in

place at the federal level in terms of (i) the General Financial Rules

(GFR), 2005, (ii) the Delegation of Financial Powers Rules

(DFPR), (iii) the Manual on Policies and Procedures for Purchase

of Goods issued by the Ministry of Finance (Manual), (iv) similar

Manual governing Procedures for Purchase of goods/services

issued by individual ministries/departments like Defence, (v)

Government orders regarding price or purchase preference or other

facilities to sellers in the Handloom Sector, Cottage and Small Scale

Industries and to Central Public Sector Undertakings, etc. and (v)

the guidelines issued by the Central Vigilance Commission to

increase transparency and objectivity in public procurement. These

provide the regulatory framework for public procurement by

governmental instrumentalities.

In addition there exist certain sectoral laws and their underlying

sectoral policies like the Telecom Regulatory Authority Act, 1997,

the Electricity Act, 2003, the Petroleum & Natural Gas Board Act,

2006, et al which also guide the public procurement processes.

Within this framework various Governmental instrumentalities and

agencies including ministries and departments (like the Public

Works Department, the National Highways Authority of India, et al)

have evolved their own public procurement system – each of which

cannot be covered here. Further, vide notification dated November

2, 2010 issued by the Department of Expenditure, Ministry of

Finance, the Central Government has made the GFR Rules

applicable to ‘autonomous bodies’ as well, except in those cases

where the bye laws of an autonomous body provides for separate

financial rules which have been approved by the Government.

1.2 How does the regime relate to supra-national regimes

including the GPA and/or EC rules?

The General Financial Rules 1963 were amended with effect from

July 1, 2005 to reflect the provisions of supra-national regimes like

the GPA and the EC Rules which have been amended from time to

time. The preface to the General Financial Rules, 2005 provide that

the review of the General Financial Rule was done to incorporate

the developments that had taken place including a rapid growth of

alternative service delivery systems, developments in information

technology, outsourcing of services and liberalisation of the system

of procurement, accounting and disposal of goods in line with the

international practices.

1.3 What are the basic underlying principles of the regime

(e.g. value for money, equal treatment, transparency) and

are these principles relevant to the interpretation of thelegislation?

Rule 137 of the General Financial Rules, 2005 lays down the basic

underlying principles of the regime and provides that every

authority delegated with the financial powers of procuring goods in

public interest shall have the responsibility and accountability to

bring efficiency, economy and transparency in matters relating to

public procurement and for fair and equitable treatment of suppliers

and promotion of competition in public procurement. Specifically,

Rule 137 of the General Financial Rules, 2005 provides that the

procedure to be followed in making public procurement must

conform to the following yardsticks:

(i) the specifications in terms of quality, type etc., as also quantityof goods to be procured, should be clearly spelt out keeping in

view the specific needs of the procuring organisations. The

specifications so worked out should meet the basic needs of the

organisation without including superfluous and non-essential

features, which may result in unwarranted expenditure. Care

should also be taken to avoid purchasing quantities in excess of

requirement to avoid inventory carrying costs;

(ii) offers should be invited following a fair, transparent and

reasonable procedure;

(iii) the procuring authority should be satisfied that the selected

offer adequately meets the requirement in all respects;

(iv) the procuring authority should satisfy itself that the price of

the selected offer is reasonable and consistent with the

quality required; and(v) at each stage of procurement the concerned procuring

authority must place on record, in precise terms, the

considerations which weighed with it while taking the

procurement decision.

Vishnu Sudarsan

Amit Kapur



J. Sagar Associates India

Rule 160 of the General Financial Rules, 2005 lays down that all

government purchases should be made in a transparent, competitive

and fair manner; to secure best value for money. This will also

enable the prospective bidders to formulate and send their

competitive bids with confidence/Some of the measures for

ensuring the above are as follows:

(i) the text of the bidding document should be self-contained

and comprehensive without any ambiguities. All essential

information, which a bidder needs for sending responsive

bid, should be clearly spelt out in the bidding document in

simple language. The bidding document should contain, inter

alia:

(a) the criteria for eligibility and qualifications to be met

by the bidders such as minimum level of experience,

past performance, technical capability, manufacturing

facilities and financial position etc.;

(b) eligibility criteria for goods indicating any legal

restrictions or conditions about the origin of goods etc

which may require to be met by the successful bidder;

(c) the procedure as well as date, time and place for

sending the bids;

(d) date, time and place of opening of the bid;

(e) terms of delivery; and

(f) special terms affecting performance; if any.

(ii) suitable provision should be kept in the bidding document to

enable a bidder to question the bidding conditions, bidding

process and/ or rejection of its bid.

(iii) suitable provision for settlement of disputes, if any,

emanating from the resultant contract, should be kept in the

bidding document.

(iv) the bidding document should indicate clearly that the

resultant contract will be interpreted under Indian Laws.

(v) the bidders should be given reasonable time to send their bids.

(vi) the bids should be opened in public and authorised

representatives of the bidders should be permitted to attend

the bid opening.

(vii) the specifications of the required goods should be clearly

stated without any ambiguity so that the prospective bidders

can send meaningful bids. In order to attract sufficient

number of bidders, the specification should be broad based to

the extent feasible. Efforts should also be made to use

standard specifications which are widely known to the

industry.

(viii) Pre-bid conference: in case of turn-key contract(s) or

contract(s) of special nature for procurement of sophisticated

and costly equipment, a suitable provision is to be kept in the bidding documents for a pre-bid conference for clarifying

issues and clearing doubts, if any, about the specifications

and other allied technical details of the plant, equipment and

machinery projected in the bidding document. The date, time

and place of pre-bid conference should be indicated in the

bidding document. This date should be sufficiently ahead of

bid opening date.

(ix) criteria for determining responsiveness of bids, criteria as

well as factors to be taken into account for evaluating the

bids on a common platform and the -criteria for awarding the

contract to the responsive lowest bidder should be clearly

indicated in the bidding documents.

(x) bids received should be evaluated in terms of the conditions

already incorporated in the bidding documents; no new

condition which was not incorporated in the bidding

documents should be brought in for evaluation of the bids.

Determination of a bid’s responsiveness should be based on

the contents of the bid itself without recourse to extrinsic

evidence.

(xi) bidders should not be permitted to alter or modify their bids

after expiry of the deadline for receipt of bids.

(xii) negotiation with bidders after bid opening must be severely

discouraged. However, in exceptional circumstances where

price negotiation against an ad-hoc procurement is necessary

due to some unavoidable circumstances, the same may be

resorted to only with the lowest evaluated responsive bidder.(xiii) in the rate contract system, where a number of firms are

brought on rate contract for the same item, negotiation as

well as counter offering of rates are permitted with the

bidders in view and for this purpose special permission has

been given to the Directorate General of Supplies and

Disposals (DGS&D).

(xiv) contract should ordinarily be awarded to the lowest evaluated

bidder whose bid has been found to be responsive and who is

eligible and qualified to perform the contract satisfactorily as

per the terms and conditions incorporated in the

corresponding bidding document. However, where the

lowest acceptable bidder against ad-hoc requirement is not in

a position to supply the full quantity required, the remaining

quantity, as far as possible, be ordered from the next higher responsive bidder at the rates offered by the lowest

responsive bidder.

(xv) the name of the successful bidder awarded the contract

should be mentioned in the Ministries or Departments notice

board or bulletin or website

The following principles governing public procurement have been

laid down by the Hon’ble Supreme:

(a) The Government must have freedom of contract. Some fair

play in the joints is a necessary concomitant for an

administrative body functioning in an administrative sphere.

(b) All contracts by the Government or by an instrumentality of

the State should be granted only by public auction or by

inviting tenders, after advertising the same in well-known

newspapers having wide circulation, so that all eligible persons will have an opportunity to bid in the auction, and

there is total transparency. All official acts must be actuated

by the public interest, and should inspire public confidence.

Usually, the State or its instrumentalities should not give

contracts by private negotiation but by open public

auction/tender after wide publicity.

(c) Having regard to the nature of the trade or largesse or for

some other good reason, a contract may have to be granted

by private negotiation, but normally that should not be done

as it shakes the public confidence. However, in rare and

exceptional cases, for instance: during natural calamities and

emergencies declared by the Government; where the

procurement is possible from a single source only; where the

supplier or contractor has exclusive rights in respect of thegoods or services and no reasonable alternative or substitute

exists; where the auction was held on several dates but there

were no bidders or the bids offered were too low, etc., this

normal rule may be departed from and such contracts may be

awarded through “private negotiations”.

(d) It is now a well-settled principle of law that having regard to

the provisions of Article 14 of the Constitution, (which

enshrines equality before law and equal protection by law)

the State cannot distribute its largesse at its own sweet will.

The court can ensure that the statutory functions are not

carried out at the whims and caprices of the officers of the

Government/local body in an arbitrary manner. But the court

cannot itself take over these functions.

(e) Swiss challenge as a procurement method has been approved

subject to safeguards.

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1.4 Are there special rules in relation to military equipment or

any other area?

The Defence Procurement Procedures, 2008 and the Defence

Procurement Manual, 2009 currently govern all procurements by the

Ministry of Defence. It envisages the following modes:

(1) Placing demands on diverse public sources including (a) the

Director General of Ordnance Factories for the manufacture

of stores in Ordnance Factories; (b) other Ministries of the

Government of India; or (c) State Governments, for supply

from factories/workshops/other procurement agencies under

them; (d) placing demands on the Industries/Factories/

Statutory Corporations -whether wholly or partly financed by

the State- set-up for the manufacture of a specific range of

items in the country; (e) placing demands on the indigenous

trade either directly or through the Director General of

Supplies and Disposals including the Textile Commissioner,

Mumbai; (f) placing demands on Defence Public Sector

Undertakings and other Government Public Sector

Undertakings for the purchase/repair/manufacture/fabrication

of items/equipment/systems/aircrafts etc. to meet Defence

Services requirements.

(2) Local purchase in respect of items which are not supplied by

the central procurement authority/organisations of the

Services/Departments and stores required in an emergency.

(3) Capital procurement of all goods and services that fit the

description of capital expenditure.

(4) Revenue procurement i.e. procurement of items and

equipments, including replacement equipment assemblies/sub-

assemblies and components to maintain and operate already

sanctioned assets in the service, the necessity of which has been

established and accepted by the Government.

(5) Indigenous procurement i.e. procurement from indigenous

sources.

(6) Foreign procurement i.e. procurement of such defenceequipment and assets, which are of foreign origin (and

includes), items required to maintain and operate such

equipments. Such equipment is procured from suppliers

abroad.

(7) Central procurement i.e. procurement undertaken against

indents resulting from a planned provisioning process like the

Annual Provision Review, refit planning, obsolescence

planning and planned routines.

(8) Local Procurement i.e. local purchase undertaken by various

authorities to meet the short term ad-hoc or urgent

requirements; or to meet the normal requirements of units for

stores which are not within the purview for central purchase

organisation.

(9) Procurement from Ordinance Factories and Defence PublicSector Undertakings.

(10) Cash and carry purchase is resorted to in case of extreme

urgency or when the supplier is not willing to supply the

required item on credit.

2 Application of the Law to Entities and

Contracts

2.1 Which public entities are covered by the law (as

purchasers)?

As per Rule 135 of the General Financial Rules, all Ministries or Departments, which are involved in procurement of goods for use, in

the public service, are covered under the category of ‘purchasers’.

Further, they apply to all autonomous bodies that created or owned by

or often received grants from the Government of India.

2.2 Which private entities are covered by the law (as

purchasers)?

Any private entity that is participating in the competitive bidding or

public procurement process to supply goods or services, or for that

matter being awarded a project or contract will get covered by the

law in as much that the bidding, qualification and award/rejection is

subject to judicial review on the well established common law

principles of reasonableness (including principles like legitimate

expectation, pacta sunt servanda, Wednesbury’s reasonableness

and proportionality – as have been incorporated into Indian law by

the courts). Any private entity claiming a wrongful denial has a

right to seek redress through the courts of law.

2.3 Which types of contracts are covered?

The regulatory framework for the public procurement system is

applicable to all Ministries or Departments of the Government

regarding procurement of goods and services required for use in the

public service.

2.4 Are there threshold values for determining individual

contract coverage?

The GFR are applicable to all instances of procurement of goods

required for use in the public service regardless of the value of the

goods.

2.5 Are there aggregation and/or anti-avoidance rules?

The Indian Income Tax Act, 1961 contain rules for avoidance on tax

on transfer of goods and services between associated and connected

enterprises. These rules are all encompassing in nature and would

also apply to contracts for public procurement. Further, certain

Governmental instrumentalities and agencies including ministries

and departments (like the Ministry of Defence, the Public Works

Department, the National Highways Authority of India, et al ) have

evolved their own public procurement system – wherein such rules

are found.

2.6 Are there special rules for concession contracts and, if so,

how are such contracts defined?

As stated above, various Governmental instrumentalities and

agencies including ministries and departments, and also some

States, have evolved their own public procurement system – each of

which cannot be covered here.

On May 16, 2007, the Government of India, Ministry of Finance

issued guidelines for pre-qualification of bidders for PPP Projects.

The guidelines provide for a two-stage bidding process and are

applicable to all ministries and departments of Central Government

and to all Central Public Sector Undertakings.

Under the Chairmanship of the Prime Minister of India, the Cabinet

Committee on Infrastructure (CCI) was constituted on July 6, 2009.

The CCI’s role is to approve and review policies and projects across

infrastructure sectors. The committee will fast track the

implementation of the infrastructure sector projects and monitor

performance keeping in mind the mandate of the government.

Some states like Andhra Pradesh, Gujarat and Punjab have enacted the

A.P. Infrastructure Development Act, 2005, the Gujarat Infrastructure

Development Act, 1999 and Punjab Infrastructure (Development &

Regulation) Act, 2002 respectively. The specific legislation existing

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in Andhra Pradesh and Gujarat is stated hereunder, explaining the

types of concession agreements covered under these legislations:

Build-and-Transfer (BT)

Andhra Pradesh Infrastructure and Development Enabling

Act, 2001

A contractual arrangement whereby the developer undertakes thefinancing and construction of a given infrastructure or development

facility and after its completion hands it over to the Government,

Government Agency or the Local Authority. The Government,

Government Agency or the Local Authority would reimburse the

total project investment, on the basis of an agreed schedule. This

arrangement may be employed in the construction of any

infrastructure or development projects, including critical facilities,

which for security or strategic reasons, must be operated directly by

the Government or Government Agency or the Local Authority.

Gujarat Infrastructure Development Act, 1999

An agreement whereby a developer undertakes to finance and

construct a project. After the completion of the project, the developer

is required to transfer the project to the State Government, aGovernment agency or, as the case may be, a specified Government

agency. The developer shall be paid such amount as is fixed in

amortisation schedule specified in the agreement.

Build-Lease-and-Transfer (BLT)


Act, 2001

A contractual arrangement whereby a Developer undertakes to

finance and construct an Infrastructure Project and upon its

completion hands it over to the Government or Government Agency

or the Local Authority concerned on a lease arrangement for a fixed

period, after which ownership of the facility is automatically

transferred to the Government or Government Agency or the Local

Authority concerned.


Build Lease and Transfer Agreement - An agreement whereby a

developer undertakes to finance and construct a project. On

completion of the project, the developer hands it over to the State

Government, a Government Agency or, as the case may be, a specified

Government Agency for operation under a lease agreement for a

period specified in the agreement after the expiry of which the project

stands transferred to the State Government, the Government Agency

or, as the case may be, the specified Government Agency.

Build-Operate-and-Transfer (BOT)


Act, 2001A contractual arrangement whereby the developer undertakes the

construction, including financing, of a given infrastructure facility,

and the operation and maintenance thereof. The developer operates

the facility over a fixed-term during which he is allowed to charge

facility users appropriate tolls, fees, rentals and charges not

exceeding those proposed in the bid or as negotiated and

incorporated in the Contract to enable the recovery of investment in

the project. The developer transfers the facility to the Government

or Government Agency or the Local Authority concerned at the end

of the fixed term that shall be specified in the Concession

Agreement. This shall include a supply-and-operate situation

which is a Contractual arrangement whereby the supplier of

equipment and machinery for a given infrastructure facility, if the

interest of the Government Agency or the Local Authority so

requires, operates the facility providing in the Government Agency

or the Local Authority so requires, operates the facility providing in

the process technology transfer and training to Government,

Government Agency or the Local Authority nominated individuals.

Build-Own-and-Operate (BOO)


Act, 2001

A contractual arrangement whereby a developer is authorised to

finance, construct, own, operate and maintain an Infrastructure or Development facility from which the developer is allowed to

recover this total investment by collecting user levies from facility

users. Under his project, the developer owns the assets of the

facility and may choose to assign its operation and maintenance to

a facility operator. The transfer of the facility to the Government,

Government Agency or the Local Authority is not envisaged in this

structure; however, the Government, Government Agency or Local

Authority may terminate its obligations after specified time period.

Build-Own-Operate-Transfer (BOOT)


Act, 2001

A contractual arrangement whereby a Developer is authorised to

finance, construct, maintain and operate a project and whereby such

project is to vest in the developer for a specified period. During the

operation period, the developer will be permitted to charge user

levies specified in the Concession Agreement, to recover the

investment made in the Project. The developer is liable to transfer

the Project to the Government, Government Agency or the Local

Authority after the expiry of the specified period of operation.


An agreement whereby the developer undertakes to finance,

construct, maintain and operate a project and whereby such project

is to vest in the developer for a specified period. During the period

of operation of the project by the developer, he may be permitted to

charge user charges as specified in an agreement. The developer is

required to transfer the project to the State Government, a

Government Agency or, as the case may be, a specified Government

Agency after the expiry of the period of operation.

Build-Transfer-and-Operate (BTO)


Act, 2001

A contractual arrangement whereby the Government or

Government Agency or the Local Authority contracts out an

infrastructure facility to a developer to construct the facility on a

turn-key basis, assuming cost overruns, delays and specified

performance risks. Once the facility is commissioned satisfactorily,

the developer is given the right to operate the facility and collect

user levies under a Concession Agreement. The title of the facilities

always vests with the Government, Government Agency or the

Local Authority in this arrangement.


An agreement whereby the developer undertakes to finance and

construct the project. On completion of the project, the developer

transfers the project to the State Government, a Government

Agency or, as the case may be, a specified Government Agency

which permits the developer to operate the project on its behalf for

a period specified in the agreement.

Build Own Operate and Maintain Agreement


An agreement whereby a developer undertakes to finance,

construct, operate and maintain a project and whereby such project

is to vest in the developer for specified period. During the period

of operation of the project, he may be permitted to charge user

charges as specified in the agreement.

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Contract-Add-and-Operate (CAO)


Act, 2001

A contractual arrangement whereby the developer adds to an

existing infrastructure facility which it rents from the Government,

Government Agency or the Local Authority and operates theexpanded project and collects user levies, to recover the investment

over an agreed franchise period. There may or may not be a transfer

arrangement with regard to the added facility provided by the

developer.

Develop-Operate-and-Transfer (DOT)


Act, 2001

A contractual arrangement whereby favourable conditions external to

a new Infrastructure Project which is to be built by a developer are

integrated into the BOT arrangement by giving that entity the right to

develop adjoining property and thus, enjoy some of the benefits the

investment creates such as higher property or rent values.

Rehabilitate-Operate-and-Transfer (ROT)


Act, 2001

A contractual arrangement whereby and existing facility is handed

over to the private sector to refurbish, operate (collect user levies in

the operation period to recover the Investment) and maintain for a

franchise period, at the expiry of which the facility is turned over to

the Government or Government Agency or the Local Authority.

The term is also used to describe the purchase of an existing facility

from abroad, importing, refurbishing, erecting and consuming it

within the host country.


An agreement whereby an existing project is vested in a person torenovate, operate and maintain for the period specified in the

agreement after the expiry of which the project is required to be

transferred to the State Government, a Government Agency or, as

the case may be, the specified Government agency. During the

period of operation of the project by the developer, he may be

permitted to charge user charges as specified in the agreement.

Rehabilitate-Own-and-Operate (ROO)


Act, 2001

A contractual arrangement whereby an existing facility is handed

over to the Operator to refurbish and operate with no time limitation

imposed on ownership. As long as the operator is not in violation

of its franchise, it can continue to operate the facility and collectuser levies in perpetuity.

Rehabilitate-Own-Operate-Maintain


Act, 2001

Not applicable.


An agreement whereby an existing project is vested in a person to

renovate, operate and maintain. The developer shall be permitted to

charge user charges as specified in the agreement.

Lease Management Agreement


An agreement whereby the State Government, a Government

agency or a specified Government agency leases a project owned by

the State Government, the Government Agency or, as the case may

be, a specified Government Agency to the person who is permitted

to operate and maintain the project for the period specified in the

agreement and to charge user charges therefore.

Management Agreement



Agency or a specified Government Agency entrusts the operation

and management of a project to a person of the period specified inthe agreement on the payment of specified consideration. In such

agreement, the State Government, the Government Agency or the

specified Government Agency, may charge the user charges and

collect the same either itself or entrust the collection for

consideration to any person who shall after collecting the user

charges pay the same to the State Government, a Government

Agency or as the case may be, a specified Government Agency.

Service Contract Agreement


An agreement whereby a person undertakes to provide services to the

State Government, a Government Agency, or a specified Government

Agency for a specified period. The State Government, a Government

Agency or, as the case may be, a specified Government Agency shall

pay him an amount according to the agreed schedule.

Supply Operate and Transfer Agreement


Act, 2001

Not applicable.


An agreement whereby a person supplies to the State Government,

a Government Agency or a specified Government Agency the

equipments and machinery for a project and undertakes to operate

the project for a period and consideration specified in the

agreement. During the operation of the project, he shall undertake

to train employees of the State Government, the GovernmentAgency or, as the case may be, the specified Government Agency

to operate the project.

Joint Venture Agreement


Act, 2001

Not applicable.



agency or a specified Government agency enters into an agreement

with a developer to jointly finance, construct, operate and maintain

a project for a period specified in the agreement after the expiry of

which the project is required to be transferred to the StateGovernment, the Government Agency or, as the case may be, the

specified Government Agency.

Further, states like Karnataka and Uttarakhand have enacted the

Transparency in Public Procurements Act, 1999 and Uttarakhand

Procurement Rules, 2008 respectively, with an aim to streamline the

procedure in inviting, processing, and acceptance of tenders by

procurement entities, and for matters related thereto.

Also, it is pertinent to note that courts in India have time and again

held that public-private partnership is a key element to develop

infrastructure in the economy [In re: Delhi Electricity Regulatory

Commission vs. BSES Yamuna Power Limited, (2007 (3)

Supreme Court Cases 33)]. Further, in order to ensure this

infrastructural growth in the country, judiciary in India hasintervened as and when required, and followed policy of ‘checks and

balances’, so as to ensure that interest of the public at large is

restored at all points of time [State of Karnataka vs. All India

Manufacturers Organisation (2006) 4 SCC 683]. Adding to this,

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in a recent case, a division bench of the Delhi High Court declined

to interfere with the policy decision of Government in public

procurement through competitive bidding to resort to short listing of

the top 5 qualified bidders thereby restricting price bids to the top 5,

upholding Government’s decision to do so, since, bidding for

infrastructure projects is a costly and intensive process thereby

getting only serious bidders. In doing so the Delhi High Court relied

upon judicial precedents on policy decisions and its flexibility, while

repelling allegations of anti-competitive and exclusionary behaviour

[Judgment dated 03.11.2008 passed by a Division Bench of the

Hon’ble High of Delhi in W.P. (C) No. 566 of 2008 titled National

Highway Builders Federation v/s NHAI & Ors.]

3 Procedures

3.1 What procedures can be followed, how do they operate

and is there a free choice amongst them?

General Financial Rule 204 inter-alia provides for the norms and principles governing contracts entered into by Government. Some

of the key principles to be observed while entering into contracts, is

as follows:

(i) The terms of contract must be precise, definite and without any

ambiguities. The terms should not involve an uncertain or

indefinite liability, except in the case of a cost plus contract or

where there is a price variation clause in the contract.

(ii) Standard forms of contracts should be adopted wherever

possible, with such modifications as considered necessary in

respect of individual contracts. The modifications should be

carried out only after obtaining financial and legal advice.

(iii) (a) A Ministry or Department may, at its discretion, make

purchases of value up to Rupees one lakh by issuing

purchase orders containing basic terms and conditions.

(b) In respect of Works Contracts, or Contracts for purchases

valued between Rupees one lakh to Rupees ten lakhs, where

General Conditions of Contract (GCC), Special Conditions

of Contract (SCC) and scope of work, the letter of

acceptance will result in a binding contract.

(c) In respect of contracts for works with estimated value of

Rupees ten lakhs or above or for purchase above Rupees ten

lakhs, a Contract document should be executed, with all

necessary clauses to make it a self-contained contract. If

however, these are preceded by Invitation to Tender,

accompanied by GCC and SCC, with full details of scope and

specifications, a simple one page contract can be entered into

by attaching copies of the GCC and SCC, and details of scope

and specifications, Offer of the Tenderer and Letter of Acceptance.

(d) Contract document should be invariably executed in

cases of turnkey works or agreements for maintenance of

equipment, provision of services etc.

(iv) Cost plus contracts should ordinarily be avoided. Where

such contracts become unavoidable, full justification should

be recorded before entering into the contract.

(v) Price Variation Clauses can be provided only in long-term

contracts, where the delivery period extends beyond 18

months. In short-term contracts firm and fixed prices should

be provided for. Where a price variation clause is provided,

the price agreed upon should specify the base level viz., the

month and year to which the price is linked, to enable

variations being calculated with reference to the price levels prevailing in that month and year.

(vi) Contracts should include provision for payment of all

applicable taxes by the contractor or supplier.

(vii) “Lumpsum” contracts should not be entered into except in

cases of absolute necessity. Where lumpsum contracts

become unavoidable, full justification should be recorded.

The contracting authority should ensure that conditions in the

lumpsum contract adequately safeguard and protect the

interests of the Government.

(viii) The terms of a contract, including the scope and specification

once entered into, should not be materially varied.(ix) Normally no extensions of the scheduled delivery or

completion dates should be granted except where events

constituting force majeure, as provided in the contract, have

occurred or the terms and conditions include such a provision

for other reasons. Extensions as provided in the contract

may be allowed through formal amendments to the contract

duly signed by parties to the contract.

(x) All contracts shall contain a provision for recovery of

liquidated damages for defaults on the part of the contractor.

(xi) A warranty clause should be incorporated in every contract,

requiring the supplier to, without charge, repair or rectify

defective goods or to replace such goods with similar goods

free from defect. Any goods repaired or replaced by the

supplier shall be delivered at the buyers premises withoutcosts to the buyer.

(xii) All contracts for supply of goods should reserve the right of

Government to reject goods which do not conform to the

specifications.

Certain sectoral and state laws and policies have also nuanced these

rules and procedures.

3.2 What are the rules on specifications?

Some of the aspects to be duly considered by governmental

instrumentalities whilst formulating the specifications and other

technical particulars of the goods to be purchased are as follows:

(i) The specifications of the goods shall meet only the actual and

essential needs of the user because “over-specification” will

unnecessarily increase the cost and may stifle competition.

(ii) Specifications should aim at procuring the latest technology

and avoid procurement of obsolete goods.

(iii) Specifications should have emphasis on factors like

efficiency, optimum fuel/power consumption, use of

environmental-friendly materials, reduced noise and

emission levels, low maintenance cost etc.

(iv) The specifications should not be too restrictive as the aim

should be to attract reasonable number of competitive

tenders. The specifications should also take care of the

mandatory and statutory regulations, if any, applicable for

the goods to be purchased.

(v) Wherever Indian Standards exists for the required goods, the

same should be adopted. Preference should be given to

procure the goods, which carry BIS (Bureau of Indian

Standards) mark. For any deviations from Indian Standards

or for any additional parameters for better performance,

specific reasons for deviations/modifications should be duly

recorded with the approval of the competent authority.

(vi) In cases where Indian Standards do not exist or, alternatively,

a decision has been taken to source the foreign markets also,

International Standards (like ISO etc.) may be adopted.

Where no widely known standards exist, the specifications

shall be drawn in a generalised and broad-based manner to

obtain competitive bids from different sources.

(vii) Except in case of proprietary purchase from a selected single

source, the specifications must not contain any brand name,make or catalogue number of a particular manufacturer and

if the same is unavoidable due to some compelling reasons,

it should be followed by the words “or equivalent”.

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3.3 What are the rules on excluding tenderers?

There is no general rule on exclusion of tenderers. However, it has

been seen in cases that from time to time due to sectoral policy

considerations (like cross-holding restrictions between print media

and broadcasting) as also issues of national/public interest (for

defence and strategic procurements) specific qualifications rules for

specific transactions may have exclusionary impact.

It is instructive to note that governmental instrumentalities may

exclude/blacklist a tenderer if a tenderer engages in illegal or

corrupt practices or if a particular tenderer has failed to perform its

obligations under a certain governmental contract. The Hon’ble

Apex Court in the matter of Raghunath Thankur vs. State of Bihar

& Ors (1989) 1 SCC 229, inter-alia observed that blacklisting any

person in respect of business ventures has civil consequence for the

future business of the person concerned. Therefore it is an

elementary principle of natural justice that parties affected by any

order of blacklisting should have right of being heard and making

representations against such order.

3.4 What are the rules on short-listing tenderers?

Each Ministry/department of the Government that engages in public

procurement formulates its own guidelines for determining eligibility

of suppliers who are qualified in all respects to deliver the goods and

services. These guidelines are formulated taking into account the

credentials, manufacturing capabilities, quality control systems, past

performance, facility for after-sales services, financial background and

other parameters contained in General Financial Rules, 2005.

3.5 What are the rules on awarding the contract?

The tender is usually awarded to the lowest evaluated tender. All

aspects, which are to be taken into account for evaluating the tenders

including the method to be adopted for evaluation of tenders and the

techniques for determining the lowest evaluated responsive tender for

placement of contract are to be incorporated in the tender enquiry

document in clear and comprehensive manner without any ambiguity

and/or confusing stipulations. In addition to the above, all the tenders

are to be evaluated strictly on the basis of the terms & conditions

incorporated in the tender enquiry document (based on which offers

have been received) and the terms, conditions etc. stipulated by the

tenderers in their tenders. No new condition should be brought in

while evaluating the tenders. Similarly, no tender enquiry condition

(specially the significant/essential ones) should be over looked while

evaluating the tenders. After completing the entire evaluation processfor the responsive tenders on equitable basis, the bids are to be entered

into a ranking statement in ascending order of the evaluated prices

(like L1, L2, L3…etc.) along with other relevant details, so that a clear

picture of their standing as well as comparative financial impact is

available at a glance. Before placing the contract on the lowest

evaluated responsive tender (L1), the purchase organisation is to

ensure that the price to be paid is reasonable. The broad guidelines for

judging the reasonableness of price are as under:

(i) last purchase price of same (or, in its absence, similar) goods;

(ii) current market price of same (or, in its absence, similar) goods;

(iii) price of raw materials, which go into the production of the

goods;

(iv) receipt of competitive offers from different sources;

(v) quantity involved;

(vi) terms of delivery;

(vii) period of delivery; and

(viii) cost analysis (material cost, production cost, over-heads,

profit margin).

3.6 What methods are available for joint procurements?

In the case of projects jointly executed by several Governments,where the expenditure is to be shared by the participating

Governments in agreed proportions, and the expenditure is ab-initio

incurred by one Government and shares of other participating

Governments recovered subsequently; such recoveries from other

Governments shall be exhibited as abatement of charges under the

relevant expenditure Head of Account in the books of the

Governments incurring the expenditure initially.

3.7 What are the rules on alternative bids?

The General Financial Rules, 2005 are silent on this issue.

4 Exclusions and Exemptions (including in-house arrangements)

4.1 What are the principal exclusions/exemptions and who

determines their application?

The principle exclusion from the ambit of these guidelines is the

procurement for the defence sector for which separate guidelines

have been prescribed. Some infrastructure sectors have their

specific laws and policies that govern public procurement

(including entry, exit and performance regulation). Similarly,

provisions regulating advances to government servants have been

excluded from General Financial Rules as these are distinct from

direct government expenditure.

4.2 How does the law apply to “in-house” arrangements,

including contracts awarded within a single entity, within

groups and between public bodies?

There is no specific regulation that applies to in-house

arrangements. Contracts entered into between groups must be

executed on an arm’s length basis and should not lead to any anti-

avoidance situations. Also transfer pricing rules come into play.

5 Remedies and Enforcement

5.1 Does the legislation provide for remedies/enforcement

and if so what is the general outline of this, including as to

locus standi?

Normally, the conditions governing the contract contain suitable

provision for settlement of such disputes/differences binding on

both the parties. If a dispute/difference arises, both the purchaser

and the supplier shall first try to resolve the same amicably by

mutual consultation. If the parties fail to resolve the dispute by such

mutual consultation within twenty-one days, then, either the

purchaser or the supplier may give notice to the other party of its

intention to commence arbitration.

If the contract is with domestic supplier, the applicable arbitration procedure will be as per Indian Arbitration and Conciliation Act,

1996 and if the contract is with foreign supplier, the supplier has the

option to chose either Indian Arbitration and Conciliation Act, 1996

or Arbitration in accordance with the provision of UNCITRAL

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(United Nations Commission on International Trade Law)

Arbitration Rules. The venue of arbitration shall generally be the

place from where the contract has been issued except when foreign

supplier opts for arbitration, in accordance with the provision of

UNCITRAL, Arbitration Rules, the venue can be a neutral country.

The governing law of the contract will be the laws of India.

5.2 Can remedies/enforcement be sought in other types of

proceedings or applications outside the legislation?

Remedies/enforcement of public procurement contracts can also be

sought under the provisions contained in the Indian Contract Act,

1872, the Specific Relief Act, 1963 and the Sale of Goods Act, 1930.

In addition to the above, a tendering process can be subject to judicial

review before a High Court in India inter-alia on the ground of

arbitrariness, fairness in action, mala fide or violation of a

fundamental or legal right as enshrined in the Constitution of India.

5.3 Before which body or bodies can remedies/enforcement

be sought?

The conditions governing the contract shall contain suitable

provision for settlement of such disputes/differences binding on

both the parties. If a dispute/difference arises, both the purchaser

and the supplier shall first try to resolve the same amicably by

mutual consultation. If the parties fail to resolve the dispute by such

mutual consultation within twenty-one days, then, either the

purchaser or the supplier may give notice to the other party of its

intention to commence arbitration.

In addition, for violation of the reasonableness-doctrine state action

is amenable to judicial review by the competent High Court in

exercise of the constitutional writ jurisdiction.

5.4 What are the legal and practical timing issues raised if a

party wishes to make an application for

remedies/enforcement?

For arbitration and ADR process the contracts read with the

governing procedural law/rules would normally stipulate the time

lines and the process.

For invoking the court jurisdiction through a civil suit, the

Limitation Act, 1963 prescribes the limitation period for filing an

application in the appropriate judicial forum for the redressal of the

grievance. In most civil cases, the prescribed limitation period is

three years from the date of occurrence of cause of action.

For invoking the writ jurisdiction though no specific time limits are

prescribed, the courts have evolved the doctrine of laches where

expedition in seeking relief is warranted and those guilty of

inexplicable or unreasonable delays find themselves non-suited.

5.5 What remedies are available after contract signature?

In case a contract has been signed, the following remedies are

available against the defaulting party:

(i) Damages for breach of the contract;

(ii) Specific performance of the contract; and

(iii) Injunctions.

5.6 What is the likely timescale if an application for

remedies/enforcement is made?

Judicial proceedings in India may take a few months to several years

for it to finally conclude. The duration depends on the complexity of

the action, the forum and other relevant parameters. What is

noteworthy is the development of statutorily mandates expert

regulatory institutions with time bound decision making processes

like the Electricity Regulatory Commissions and the Telecom

Regulatory Authority of India with an expert appellate tribunal

(expert with judicial officers and technical/sectoral experts as

members). These mechanisms have been significant in getting quick,

expert decisions - cutting down the time and costs of adjudication

since their decision is appealable to the Supreme Court and all other

courts normally do not interfere with their decision making.

5.7 Is there a culture of enforcement either by public or

private bodies?

Yes. There is a culture of enforcement. Both public and private

bodies take recourse to the legal rights and remedies as provided by

law to enforce their rights.

5.8 What are the leading examples of cases in which

remedies/enforcement measures have been obtained?

The Supreme Court’s decision in the matter of Ramana Dayaram

Shetty v/s International Authority of India (1979) 3 SCC 489 is a

landmark on the issue of administrative action, which is applicable to

public procurement also. In the abovementioned matter, the Hon’ble

Apex Court observed as follows:

(i) Every action of the executive Government must be informed

with reason and should be free from arbitrariness. That is the

very essence of the rule of law and its bare minimal

requirement.

(ii) Government action must be based on standards that are not

arbitrary or unauthorised. The Government is still theGovernment when it acts in the matter of granting largesse

and it cannot act arbitrarily. It does not stand in the same

position as a private individual.

(iii) The State need not enter into any contract with anyone, but if

it does so, it must do so fairly without discrimination and

without unfair procedure.

(iv) It must, therefore, be taken to be the law that where the

Government is dealing with the public, whether by way of

giving jobs or entering into contracts or issuing quotas or

licences or granting other forms of largesse, the Government

cannot act arbitrarily at its sweet will and, like a private

individual, deal with any person it pleases, but its action must

be in conformity with standard or norm which is not arbitrary,

irrational or irrelevant, and if the Government departs fromsuch standard or norm in any particular case or cases, the action

of the Government would be liable to be struck down, unless it

can be shown by the Government that the departure was not

arbitrary, but was based on some valid principle which in itself

was not irrational, unreasonable or discriminatory.

The said precedent has since been followed repeatedly.

Further, an important facet of Indian jurisprudence has been the

judicious weighing of public interests with private interests in

interfering with public bidding and procurement processes, as also

in fashioning relief.

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6 Changes During a Procedure and After a

Procedure

6.1 Does the legislation govern changes to contract

specifications, changes to the timetable, changes to

contract conditions (including extensions) or changes tocontract terms post-signature? If not, what are the

underlying principles governing these issues?

There exists no legislation specifically governing contract

specifications, changes to the timetable, changes to contract

conditions (including extensions) or changes to contract terms post-

signature – other than the Indian Contract Act, 1872 – i.e., the same

is left to the contract between the parties. In addition, the procurer

in public procurement contracts being an instrumentality of state is

expected to act in a fair and reasonable manner. Unless explicitly

reserved by contract, there cannot be any unilateral amendments to

executed contracts.

Any amendment to contract terms requested by the supplier mayhave, inter alia, financial impact and/or technical impact and/or legal

impact. Therefore, before agreeing to the request of the supplier, the

purchase organisation usually scrutinise the issue on its merits to

ensure that the requested amendment does not have any adverse

effect on the purchase organisation. Financial concurrence should be

obtained before issuing any amendment having financial

implications/repercussions. Further, there may be an occasion where

consultation with Law Ministry will be necessary before issuing the

proposed amendment. The Ministry/Department should process such

issues, as deemed fit, depending on the merit of the case.

6.2 In practice, how do purchasers and providers deal with

these issues?

Amendment to contract terms are dealt with transparently by the

suppliers and the concerned Governmental Instrumentality, and are

negotiated mutually within the applicable contractual framework.

7 Privatisations and PPPs

7.1 Are there special rules in relation to privatisations and

what are the principal issues that arise in relation to

them?

The stated objective of disinvestment is to put national resources

and assets to optimal use and in particular to unleash the productive potential inherent in the public sector enterprises. The policy of

disinvestment specifically aims at: (i) modernisation and

upgradation of Public Sector Enterprises with greater service

delivery focus; (ii) creation of new assets; (iii) generating of

employment; (iv) retiring of public debt; (v) freeing public finances

for developmental work – and minimising subsidy burden; and (vi)

engaging private enterprise for financing, establishing, managing

and operating public services/facilities. In this context, the

Government would like to ensure that disinvestment does not result

in asset stripping, erosion of quality of service, unregulated private

monopolies, usurious pricing, et al .

7.2 Are there special rules in relation to PPPs and what are

the principal issues that arise in relation to them?

On May 16, 2007, the Government of India, Ministry of Finance

issued guidelines for pre-qualification of bidders for PPP Projects.

The guidelines provide for a two-stage bidding process and are

applicable to all ministries and departments of Central Government

and to all Central Public Sector Undertakings.

8 Other Relevant Rules of Law

8.1 Are there any related bodies of law of relevance to

procurement by public and other bodies, such as freedom

of information or general contract law?

At the apex of the legal framework governing public procurement is

Article 299 of the constitution which stipulates that contracts legally

binding on the Government have to be executed in writing by officers

specifically authorised to do so. Further, the Indian Contract Act, 1872and the Sale of Goods Act, 1930 are major legislations governing

contracts of sale / purchase of goods in general.

Also, it is instructive to note that the Right to Information Act was

enacted in 2005 with an objective of setting out the practical regime

of right to information for citizens to secure access to information

under the control of public authorities, and in order to promote

transparency and accountability in the working of every public

authority, the constitution of a Central Information Commission and

State Information Commission.

9 The Future

9.1 Are there any proposals to change the law and if so what

is the timescale for these and what is their likely impact?

No. At present there is no bill pending in the parliament to bring

about any change in the existing law.

Acknowledgment

The authors would like to acknowledge the assistance of their

colleague Neha Gupta, an Associate at J. Sagar Associates, in the

preparation of this chapter.

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ICLG TO: PUBLIC PROCUREMENT 2011WW.ICLG.CO.UK© Published and reproduced with kind permission by Global Legal Group Ltd, London

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Amit Kapur

J. Sagar Associates84-E, C-6 Lane

Off Central Avenue Sainik Farms

New Delhi -110062India

Tel: +91 11 4311 0630

Fax: +91 11 4311 0617

Email: [email protected]

URL: www.jsalaw.com

Amit’s practice covers Energy (Power, Oil & Gas);Communications (Telecom & Broadcasting); Surface Transport

(MRTS & Highways); Municipal Infrastructure (Water, Sanitation,Waste Management); and Social / Developmental projects. Hehandles varied aspects of legal, regulatory and policy issues inthe sectors ranging from:

Ø Advising on the applicable constitutional, legal, policy andregulatory issues; drafting laws, delegated legislation,policies, regulatory instruments and reform / restructuring

strategies.

Ø Advising on Transactions including Mergers & Acquisitions, inbound & outbound investments,

commercial arrangements and financing.

Ø Evolving institutional frameworks, regulatory regimes and

policies to facilitate public-private partnerships.

Ø Evolving strategies and approaches for efficient operations

of regulated utilities including aspects of competition;licensing; economic regulation; performance regulation.

Ø Strategising, handling and arguing various complex

precedent - settling disputes including Commercial, JointVentures, Regulations & Competition issues before theSupreme Court of India, High Courts, Appellate Tribunals,Sector regulators (in Competition, Power & Telecom

sphere), Arbitral Tribunals and expert bodies.

Amit advises/represents diverse entities including Governments andgovernmental entities, Competition & Sector regulators; Indian

Corporate in their domestic and outbound businesses; Foreignentities investing in India; Developmental Financial Institutions.

Vishnu Sudarsan

J. Sagar AssociatesSandstone Crest, Opp. Hotel Park Plaza

Sushant Lok Phase I, Gurgaon -122009

India

Tel: +91 12 4439 0677 Fax: +91 12 4439 0617


URL: www.jsalaw.com

Vishnu’s practice spans advising clients across different verticalsviz , Energy (Power), Communications (Telecommunications),

Transport (Surface Transport including Railways & Metrosystems), and Urban Infrastructure. In these verticals, he advisesclients on issues ranging from corporate transactions to PPPs.Vishnu advises/represents diverse entities includingGovernments and governmental entities, equity investors in their

domestic and outbound businesses; foreign entities investing inIndia; and Developmental Financial Institutions.

J. Sagar Associates (“JSA”) is a leading national law firm in India with over 190 lawyers and consultants including 40 partners

based in New Delhi, Gurgaon, Mumbai, Bangalore and Hyderabad. For almost two decades we have provided legal advice and

services to international and domestic clients. Our mission is to provide outstanding legal solutions in our chosen practice areaswith a strong emphasis on ethics. Our clients benefit from our expertise and experience as a large firm while still enjoying the

privilege of personal attention and responsiveness of a small firm. Our advice is delivered by well informed, accessible, partner-

led teams who strive to provide the highest quality of service to our clients, by listening, understanding their needs, responding

promptly and living up to the commitments that we make. We use plain English to communicate verbally and in our documentation.

JSA’s practice extends across diverse sectors of industry and services such as Consumer & Industrial Products, Consumer

Durables, Financial Services & Banking, and Energy & Transportation. We understand and appreciate the different challenges

that our clients face in the current business environment as a result of technological change, evolving government regulation and

competitive pressures in the marketplace. We provide a diverse set of legal services to our clients and assist them to meet these

challenges successfully. Our practice areas are Corporate Commercial; Banking & Finance; Capital Markets & Securities;

Regulatory & Policy; Indirect Tax; Dispute Resolution; and Employment. Our sectors include Energy (Power, Oil & Gas); Mining;

Hospitality & Leisure; Education; Asset Management & Financial Institutions; Transportation (Aviation, Railways & Metro, Surface

Transport and Ports); Real Estate; Knowledge Based Industries (IT / ITES / Life Sciences); Media, Entertainment & Sports;

Communications (Telecom & Broadcasting); Municipal & Developmental Infrastructure; Retail & Franchising; Construction &

Engineering; Insurance; and Defence & Internal Security. We have been awarded as the “Top Three Indian Law Firms” and asthe “Best Employer in Indian Law Firms” by the first annual Rainmaker Law Firm Survey 2008.



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