Centre tightens public procurement criteria for border countries

Registration stands annulled if there is a change in controlling ownership, which is above 10%

The Centre has further tightened its eligibility criteria for public procurements or contracts invited by the Union government and state-owned firms from bidders of countries that share land borders with India, including China and Pakistan. 

According to the new General Financial Rules, issued recently, the bidders (from bordering nations) need to compulsorily give an undertaking that registration granted shall automatically stand "annulled" in case of the appointment of new directors or if there is any change in the controlling ownership with the new shareholder owning more than 10 per cent stake.  Earlier there was no such threshold.

These changes have been presumably introduced in continuation of the July notification, in which the government had directed interested bidders from the bordering countries to register with the registration committee under the Department for Promotion of Industry and Internal Trade (DPIIT). They will also be required to take mandatory security clearance from the ministries of external affairs and finance.  

Experts say that further tightening of the rules is in light of the DPIIT’s experience with the applications already filed, and which are at present pending to be processed. 

“The revised format issued by the DPIIT for registration of bidders in respect of public procurement matters now requires prospective bidders to furnish details of manufacturer/ service provider/ contractor, if different from the bidder, in much more details are required to be disclosed than the earlier format," said Atul Pandey, partner, Khaitan &Co.  

According to him, the new criteria also include a separate security clearance form that is to be furnished by such a manufacturer/ service provider/ contractor and which will be vetted by the home ministry. Prospective bidders will, therefore, face a heightened level of scrutiny in respect of their manufacturer/service provider/ contractor."

The DPIIT’s July order had also stated that any bidder from the countries sharing a land border with India will be eligible to bid in any procurement, whether of goods, services (including consultancy services and non-consultancy services) or works (including turnkey projects) only if the bidder is registered with the competent authority. 

The new norms are with respect to only government- and ministries-related contracts and not part of altered foreign direct investment rules that came in April. The change in FDI rules was under the Foreign Exchange Management Act, and that does not define ownership norms. The said issue is still under deliberation as the ministries concerned are yet to come out with the clarification over beneficial ownership in case of foreign investment from the bordering nations.