Looking beyond L1

Govt introduces progressive reforms in procurement

The Department of Expenditure announced a little-noticed change in government procurement policy at the end of October and it could have a significant impact on the way projects are awarded and executed. In the case of projects designated Quality Oriented Procurement (QOP) and non-consulting services, the government has allowed for the L1 or lowest-bid procured for a tender, to be replaced by a Quality-cum-Cost-based Selection (QCBS). L1 has long been the bane of the government procurement system, which has resulted in shoddy infrastructure and project execution. The revised guidelines are meant to ensure faster, efficient and transparent project execution and they are part of wider analyses of public procurement and project management processes conducted by the Central Vigilance Commission (CVC), the Comptroller and Auditor General (CAG), and NITI Aayog over the past year and a half.

The guidelines permitting the QCBS method were first suggested in the finance ministry’s General Financial Rules in 2017. They set out in detail which government functionary can declare a project eligible for QOP status and which projects can qualify for this status, and stipulate that the maximum weighting of non-financial parameters cannot exceed 30 per cent of the project cost. A QOP project must also have a special technical committee of experts to recommend the financial, quality and technical and other criteria for the bidding process. A separate committee has to be set up to evaluate the bids. The guidelines have also made a significant recommendation in the event of arbitration and dispute resolution. Observing that when the government challenges arbitration awards, statistics have shown that a large majority of the cases are decided in favour of the contractor, the guidelines say it is in the public interest to take the risk of paying a substantial part of the reward amount subject to the result of litigation.

These guidelines mark a wholly new progressive approach towards government procurement and project management in India and it is significant that they come just as the massive National Infrastructure Pipeline projects get underway, involving the extensive award of contracts to the private sector. Two lingering but urgent issues, however, remain. The L1 system, however flawed, marked a definitive criterion on which projects could be awarded. But the introduction of the QCBS concept could well leave room for interpretation and, therefore, opportunities for the contractor to game the system. The chronic suspicion of crony capitalism associated with public projects will remain. To preclude this, quality and other non-financial parameters need to be clearly and explicitly specified and accountability assigned so as to leave no room for ambiguity in terms of deliverables.

The other factor that could well weigh heavily on the QCBS system is the scope for post-facto action against bureaucrats by the vigilance trio of the CVC, CAG, and the Central Bureau of Investigation, the single reason for paralysis in bureaucratic decision-making since the eruption of 21st century controversies over coal block allocations in 2010s and privatisation decisions in the early 2000s. The fact that these guidelines were formulated with the CVC and CAG participation offers some assurances, to be sure, as did Finance Minister Nirmala Sitharaman’s statement to this effect earlier this year. But bureaucrats may need more categorical legal protections within a statute of limitation, and it would have been useful if these guidelines had included these as well.