Law and Regulation of eGP in India

Sandeep Verma

Director, Archaeology & Museums Government of Rajasthan Jaipur, Rajasthan 302 014, India. sverma@rajasthan.gov.in, sverma@rajasthan.net

Verdicts on Government Procurements in India

Tenders are a major source of corruption (CVC 1998) Deviations in practice rather than absence of rules (World Bank 2003, Hoda and Bansal 2004)

Irregular practices in Government Procurement

Access to Knowledge
Absence of notice (selective/ restrictive advertisements) Lack of knowledge of tender rules and decision-making processes Lack of clarity in technical specifications Non-transparency in payments

Access to Opportunity
Selective sale of tender documents Obstruction/ intimidation of bidders selective acceptance of bids Modification/ substitution of quotes and tender papers Delays in processing of tenders Multiple in-situ and ex-post facto interventions

eGP Frameworks
Trust in electronic commerce versus Correctness in public procurement Public procurement space in India versus that elsewhere

General level of trust Enforcement of rights in civil and criminal matters Multiple levels of in-situ and ex-post-facto interventions (within the executive, and from outside- the judiciary, the Lokayukta/ Ombudsman, the CVC, the CAG, the Information Commissioners)

Single-shot success versus Sustainability One Man show versus organisational effort

Government Procurement and International Negotiations

GATT 1994: government procurement of goods excluded from scope of national treatment and MFN clause; but covered by transparency obligations GATS 1994: exclusion of government procurement of services from provisions of unconditional MFN and specific commitments of market access and national treatment; but as a temporary measure only

GPA 1981: Tokyo Round- transparency and non-discrimination provisions, India is not a signatory
GPA 1996: Uruguay Round/ WTO Agreement: services included, transparency, domestic challenge procedures to be established Doha Round 2001: Transparency in Government Procurement is one of the four Singapore Issues, negotiations are underway

UNCITRAL Model Law & eGP

UNCITRAL Model Law on Procurement of Goods, Construction and Services is the basis In its 36th session, the Commission expressed strong support for addressing issues arising out of increasing use of electronic communications and technologies in public procurement Working Group I sets out policy objectives for eGP
Functional equivalence of electronic and paper-based records Technology neutrality Mandatory/ optional use of electronic publication Consent of suppliers Use of reverse auctions

Government Procurements: the legal scenario in India

Access to Information
Right to Information Act Procurement Rules/ Acts CVC Guidelines

Access to Opportunity

Procurement Rules/ Acts Competition Act CVC Guidelines

Electronic Environment

Information Technology Act

Legal foundations of eGP in India

No Act/ set(s) of rules deals with eGP: one needs to read local procurement acts/ rules together with the IT Act and attempt inferences on electronic procurement mechanisms and electronic publication Negotiations and counter-offers are strictly restricted if not prohibited, price-bid disclosure is similarly prohibited CVC guidelines offer a minimalist framework
E-procurement/ reverse auctions are permitted provided they are conducted in a fair and transparent manner Switchover from manual paper-based tendering systems to eprocurement/ e-sale allowed wherever practical and feasible

A legal autopsy of an electronic Reverse Auction

A reverse auction is a dynamic procurement system based on negotiated multiple counter-offers, with real-time price-disclosure to all bidders while keeping their identities secure Ergo It is nothing like the traditional simultaneous, sealed-bid, first-price auction!

eGP Mechanisms
Electronic Tendering
Electronic Disclosure of tender opportunities Automated/ Assisted Registration & Distribution of documents Electronic Bid Submission Electronic Contract Management

Electronic Reverse Auctions

Electronic Purchases Electronic Auctions Supply Chain Integration and Automation

Electronic Vickrey/ second-price auctions Rate Contracts and Framework Agreements

eGP: Reverse Auctions

Position of Negotiated Procurements and Multiple Bidding under
Local Procurement Acts and Rules CVC Guidelines

Position regarding Price- disclosure requirements (through the Buyer to other bidders) vis--vis

Local Procurement Acts, Rules and Guidelines RTI Act, IT Act Preferences for SSIs and other socioeconomic entities Consent implied by Participation; voluntary consent

eGP: Reverse Auctions

Reverse Auctions for what commodities?
Clear technical specifications and buyers capacity to enforce compliance [Standardised, commercial, off-the-shelf products] Only for fungible products? For services? Role of non-price factors Adequate market intelligence Safety concerns

eGP: Reverse Auctions

Reverse Auctions for what quantities? For what class(es) of bidders?
Bulk buying for individual user Agglomerated small buying for multiple users Buying from established and responsible buyers Economies of scale versus socioeconomic preferences Economies of scale versus monopolistic/ oligopolistic sellers Possibility of collusion Real-time bid-price disclosure: price preferences and instant award

eGP: Reverse Auctions

Reverse Auctions as an interim stage after technical evaluation, or as the full procurement decision?
Pre-screening and maintenance of suppliers lists Rank Bidding, Transformational Bidding and True Best Value Bidding

eGP: Reverse Auctions

Bid time-frames
Hard Closure and Extensions Flexibility in decision-making by bidders

Auction Fever or the Winners Curse

Impact on long-term relationships between buyers and sellers Impact on R&D for products fair and reasonable price bands, possibility of Vickrey auctions Quantity-based auctions Is under-bidding a real problem?

Instant Award versus Post-auction analysis

Electronic Government Procurement in India

An analysis of eGP projects from an access viewpoint

Access to knowledge of tender opportunities

Large number of websites, but very little integration and standards-based organisation of information Infrequent updation and reliability of accurate, up-to-date information Unprotected sites: digital verification and authentication of downloads not possible Absence of automatic notification by email

Access to knowledge of bidding rules

Strong technical and financial bid evaluation both in paper-based as well as electronic mechanisms E-reverse auctions: lack of sufficient information on bid parameters like start time and duration, rules on extension of time, bid increments, critical number of minimum bidders, and even delays in announcement of bidding rules

Trust in system integrity and bid challenge procedures

Low levels of public trust in general: few good bidders participate, markups generally made by vendors ASP-centered approach effectively disables third-party audit
Drop in connectivity Number of modifications by winning bidder

Absence of clear bid challenge procedures even on the electronic platform

Access to ICT & digital security infrastructure

3.6% of the population is internet users in 2005, 50% of them in top 8 metros (NRS estimates are even lower) One in five persons reads a newspaper, while one in thirty uses the internet Cost of access to ICT not lower than access to newspapers Poor line and power quality even in capital cities Compounds problems associated with poor organisation of electronic information, and with electronic reverse auctions

Electronic auctions and law of privacy/ data protection

Legal status of protection of sensitive commercial information and intellectual property Whether mere participation equals consent to waiver of rights on IP While IT acts lists criminal and civil penalties, most Govt-ASP agreements do not delineate liabilities, bidders indemnify the ASP as a prerequisite to participation RTI Act: allows public disclosure of commercial information

Agglomeration of quantity
No law/ rules/ guidelines exist Left to discretion of purchasing agencies Impacts on competition
Limiting number of players Favour large players at the cost of SSIs and SMEs

Technology & Competition

Almost all eGP projects employ mono-methods Access to technology and ICT is restricted by costs, quality and regions: thus affecting economic competition MDB guidelines
Electronic participation should not be mandatory but must include paper-based options Electronic publication must be promoted but not solely mandated No additional financial burden on bidders because of use of technology platforms

Competition Law in India

Ban on limiting supply, markets or provisions of services Prohibition of tie-in arrangements Ban on refusal-to-deal by restricting classes of persons Prohibition on practices that result in denial of market access

Electronic Government Procurement

Back to Basics

eGP Issues
Agglomeration of Quantity and its relationship with
economies of scale Market structure SSI preferences and capacities

GoI/ State Government/ PSU/ CVC/ MDB/ UNCITRAL Guidelines on

Optional/ Mandatory eGP User-charges for participation in eGP Mandatory/ Optional publication of Tender Notices and Awards

eGP Issues
Technology as Barrier to Entry
Technology neutrality Choice of software platform Cost and availability of technology Regional dispersion of technology and capacity

Limitations of Technology
Verifiability after certificate revocation and expiry (validity period) Re-verification Digital Storage and retrieval Notararisation

eGP Issues
Issues in Bid Challenge Procedures
Connectivity failures Handling mistakes Disclosure of identity Non-disclosure of own relative position Deliberate and malicious attacks System Recovery and Pause of bidding

Dispute Resolution Fora

Does Outsourcing of Services equal Outsourcing of Grievance Redressal Liability of Government functionaries vis--vis computers and visa-a-vis Service Provider Multiple levels of in-situ and ex-post-facto interventions Civil and criminal adjudication authorities under the IT Act 2000

eGP Issues
eGP as a subset of overall contract reform
Electronic Payments ERP/ SCM systems

Develop Book-keeping, Accounting and Audit capabilities Use and Maintenance of suppliers lists Taxation of eCommerce

References
American Management Systems (2001), The Case for Federal eProcurement [online] http://www.netcaucus.org/books/egov2001/pdf/The_Case.pdf Bhatnagar, S. (2003a), The Economic and Social Impact of Egovernment [online] http://www.iimahd.ernet.in/~subhash/pdfs/UNDESAeGovReport.pdf Bhatnagar, S. (2003b), E-government and access to information, Global Corruption Report 2003, Hodess, Inowlocki and Wolfe (Eds.), Profile Books Ltd, London, 2003, 24-32 Central Vigilance Commission (1998), Improving Vigilance Administration, Orders No. 8(1)(h)/98(1) dated November 18, 1998 [online] http://cvc.nic.in/ins1.pdf Chandrasekhar, C.P. (2003), Can Connectivity help the Poor?, Frontline, Vol. No. 20 Issue No. 2, 2003 [online] http://www.hinduonnet.com/fline/fl2012/stories/2003062000491170 0.htm The Hindu Business Line (2004), SAIL, Tata Steel ties strained over Metaljunction portal [online] http://www.blonnet.com/2004/06/26/stories/2004062602860100.ht m Hoda, A. and Bansal, S. (2004), Transparency in Public Procurement, Working Paper No. 129, Indian Council for Research on International Economic Relations [online] http://www.icrier.org/wp129.pdf Indian Railways (2006), Instructions for Suppliers/ Contractors/ Vendors for participation in Electronic Tenders [online] http://www.nreps.com/nrailways//publicDocs/EPSGUIDE/instructiion. pdf Inter-American Development Bank (2005), e-Reverse Auction Guidelines for MDB Financed Procurement [online] http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=645477 Metaljunction (2004), On Behalf of Steel Authority of India Limited [online] http://auction.metaljunction.com/attachments/SAIL%20Bokaro%20T erms%20and%20Condiotions(11-1-2004).pdf Metaljunction (2005), Invitation to Online Forward Auction [online] http://auction.metaljunction.com/attachments/IISCO%20BURNPUR %20BILLET%201000MT%20CATALOGUE(8-11-2005).pdf Seifert, J. W. and Bonham, G. M. (2003), The Transformative Potential of E-Government in Transitional Democracies [online] http://www.spa.msu.ru/e-journal/2/25_1.php Stein, A. and Hawking, P. (2002), Reverse Auction E-Procurement: A Suppliers Viewpoint [online] http://ausweb.scu.edu.au/aw02/papers/refreed/stein/paper.html Turley, S. L. (2002), Wielding the Virtual Gravel-DoD moves forward with reverse auctions, Military Law Review, Vol. 173, September 2002, pp. 1-67 [online] http://www.loc.gov/rr/frd/Military_Law/Military_Law_Review/pdffiles/27648D~1.pdf UNCITRAL (2004), Recent developments in the area of public procurement- issues arising from the increased use of electronic communications in public procurement [online] http://daccessdds.un.org/doc/UNDOC/LTD/V04/547/11/PDF/V04547 11.pdf Verma, S. (2004), Electronic Government Procurement: A legal perspective on the Indian situation, Journal of Electronic Government, Vol. 1 No. 3, 2004, pp.328-334 Verma, S. (2006), E-Buying: The Works, The Economic Times, February 2, 2006 [online] http://www1.economictimes.indiatimes.com/corpambanishow/13972 71.cms Wallace, D. Jr., Yukins, C. R., Matechak, J. P. (2005), UNCITRAL Model Law: Reforming Electronic Procurement, Reverse Auctions, and Framework Contracts, The Procurement Lawyer, Vol. 40 No. 2, 2005 [online] http://papers.ssrn.com/sol3/papers.cfm?abstract_id=711401 The World Bank (2001), Electronic Government Procurement: Concepts and Country Experiences [online] http://wbln0018.worldbank.org/OCS/egovforum.nsf/c3c9b2819079a 45d852569bc007722a0/e5596442988cccfd85256af5006af56a/$FILE/ ATTUQ5LL/egpdiscpaperdraft16.pdf The World Bank (2002), Electronic Government Procurement: A legal perspective on Country Practices [online] http://wbln0018.worldbank.org/OCS/egovforum.nsf/c3c9b2819079a 45d852569bc007722a0/c9070990a03d7e2585256af5006af56d/$FILE /Legal%20Summary%2003-19-02web.pdf The World Bank (2003), Country Procurement Assessment Report (India) [online] http://wwwwds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2004/04/02 /000012009_20040402111746/Rendered/PDF/278590IN.pdf

Thank You