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WORKSHOP on ENFORCEMENT OF CONTRACT CLAUSES and timely recovery

ETHICS IN PUBLIC PROCUREMENT. WORKSHOP on ENFORCEMENT OF CONTRACT CLAUSES and timely recovery. JAIPUR 23.02.2012. By G. ASOK KUMAR, IAS CVO,AAI. ETHICS. Is doing the RIGHT THING

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WORKSHOP on ENFORCEMENT OF CONTRACT CLAUSES and timely recovery

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  1. ETHICS IN PUBLIC PROCUREMENT WORKSHOP on ENFORCEMENT OF CONTRACT CLAUSES and timely recovery JAIPUR 23.02.2012 By G. ASOK KUMAR, IAS CVO,AAI

  2. ETHICS • Is doing the RIGHT THING • Is the imbibed value system – may vary from culture to culture, place to place, but there are certain universally accepted values • Is what money cannot buy. Best when internalised and comes from within. • Can be forced- but true ethics is doing the right thing, even when not watched.

  3. GOOD ETHICS • Gets the trust of people • Is very important in public life • Carries the burden of the hopes of millions of people, who expects the public servants to perform their duties as a trustee • Makes everyones’ life pleasant

  4. PUBLIC PROCUREMENT ? • Any procurement made for public / by spending public money is public procurement. • Procuring works, material, services etc., of the SPECIFIED QUALITY within the SPECIFIED TIME and at the MOST COMPETITIVE PRICES in a FAIR, JUST and TRANSPARENT MANNER is essential in public procurement. • CVC, therefore, maintains a high focus in this area.

  5. PUBLIC PROCUREMENT • Public procurement plays vital role in economy / growth • Appxmly. 30% of India’s GDP gets converted into public procurement contracts. • Departments like Railways, Defence and Telecom use 50% of their funds for procurement of good and services. • According to World Bank’s estimate, the average bribe to obtain a public contract is 15% of contract value. • Budget expenditure of AAI during 2011-12 is Rs. 2100/- Crores and for the year 2012-13 is Rs. 2450/- Crores.

  6. PILLARS OF VALUE OF PUBLIC PROCUREMENT • 1. Public Trust: Is the faith the public has in governments that are created to protect their basic freedoms. • Each citizen has an expectation that government, and each member of the government, will discharge their duties in a competent manner and not abuse authority granted to them. Not only does the citizen pay for these services, but they have relinquished some of their individual rights and freedoms to ensure that the government has the ability to look after their well-being. An abuse of authority always is a betrayal of the public trust and is not tolerated in a democratic society. Thus, public procurement operations are subject to intense public scrutiny.

  7. PILLARS OF VALUE OF PUBLIC PROCUREMENT • 2. Public Service: Government organizations offer varied services and serve a number of people, a common concern is the need to make the best use of available financial and human resources. To do this, public employees serve a unique role in society. • Employees must use their authority without bias. • As stewards of the public trust, and as servants to the public welfare, procurement practitioners must consistently pursue their professional standards even at the expense of their personal beliefs.

  8. PILLARS OF VALUE OF PUBLIC PROCUREMENT • 3. Justice: Justice is the quality of being just, impartial and fair in how public procurement professionals discharge their responsibilities. • Justice is best served when professionals exercise judgment within established legal frameworks to balance competing interests among all stakeholders with the explicit intent to ensure that decisions and actions are proper, fair & appropriate.

  9. PUBLIC PROCUREMENT…… • As procurement is prone to corrupt practices, it has a many effects: • it distorts the market mechanism, • represents a high cost to the procurer and • results in poor quality of goods and services • Erodes public faith.

  10. ESSENTIALS FOR PUBLIC PROCUREMENT • Any sound procurement procedure should be based on principles of ethics, fairness, equity and transparency. • In brief, the canons of public procurement are: • Right Place – Need / scope • Right material - Quality • Right Time - Time • Right Price - Value for money • Right Vendor – Fairness & Transparency

  11. PREREQUISITES FOR PUBLIC PROCUREMENT • Well documented Works / Purchase Manual with clear DoP (Delegation Of Powers) • Regular updating of Manual for systematic and uniform approach • Formulation of project proposal and establishing need and justification – Techno Economical Feasibility Studies (TEFS), Comprehensive Bid Analysis (CBA), Techno-Commercial Studies in terms of payback period, IRR, Discounted Cash flow (NPV) etc.

  12. PREREQUISITES FOR PUBLIC PROCUREMENT… • VALUE ENGINEERING – Evaluation of all available alternatives. • STRs (Specifications and Technical Requirements) – Broad based enough to encourage competition and at the same time specific to meet the actual intended use / purpose. Not customized and tailor made to suite select group of vendors that restricts competition. • Designs to be optimized - avoid over provisioning. • Realistic Estimates based on proper market survey.

  13. PREREQUISITES FOR PUBLIC PROCUREMENT… • TIME IS THE ESSENCE • Timely Decision making. • Timely commissioning of cost intensive equipment/facility • Timely rescission of contract on account of delays / non performance • Systemic Performance Appraisal of vendors/ contractor / consultants • Accountability

  14. Investment in Airport Infrastructure

  15. CONTRACT CLAUSES? • Procurements/Projects undertaken by PSUs are governed by Manuals /Guidelines thus, resulting in signing of Contract Agreement with the executing agency / supplier. • Various Clauses stipulated in the Agreement are essence of the Contract. • The elements of the contract are mutual assent and consideration.

  16. Contd.. • Adherence to the Contract clauses in terms of specifications / making payments etc. as per agreement are essential for effective Contract Management. • Non adherence to the Contract Clauses gives rise to undue benefits to the executing agency causing losses to the organization and defeats the very purpose of stipulations.

  17. AREAS OF CONCERN /VIGILANCE ISSUES • Change in scope of work after award of contract. • Accepting revision in specification / payment conditions after award of work. • Allowing extra items at inflated rates.

  18. Contd… • Permitting alternative makes without adequate cost adjustments. • Acceptance of substandard work . • Delay in completion and commissioning of various projects (Cost overrun / Time overrun). Sometimes doubting the need / purpose of procurement.

  19. CVC / CTEO GUIDELINES • All public procurements are subject to the compliance of CVC’s / CTEO’s circulars / instructions. • Circulars / instructions issued by AAI are also to be followed meticulously for effective Contract Management: • CVC circulars/orders – (http://cvc.gov.in/cvc_instruct.htm) • CTEO’s circulars/orders– (http://cvc.nic.in/CompcirculCTE.pdf) • AAI Circulars – (http://infosaarthee/Board Member/Planning/ TechInst/Pages/default.aspx ). So far 86 TI’s issued. It is better to update the Works Manual.

  20. CTEO’S OBSERVATIONS • In one work the Board’s approval for Architect Fee was to be fixed at 5% of the estimated cost or the awarded cost, whichever is lower. However, at the time of framing the agreement, the fee was changed to 5% of the actual cost of the work or the awarded cost, whichever is lower. This revision caused increase in consultancy fee by approximately Rs. 24 crores, giving undue benefit to the architectural consultant.

  21. CTEO’S OBSERVATIONS …. • A large area of land in the airport premises was allotted at a nominal cost to the contractor for establishing stockyard, which was against the clarification issued at pre-tender stage of the work. Undue benefit accrued to contractor on this account was of the order of Rs.10 crore.

  22. CTEO’S OBSERVATIONS …. • Completion Certificates recorded without ensuring the completion of all the packages of composite tenders. • Higher rates paid to the Contractor compared to the rates admissible as per contract provisions for substituted items. • Measurement for steel was made in excess of actually used and no provision made in the contract for the ownership of scrap.

  23. Observations-CTE Type • Scope of work and design of the structures changed during execution. • Escalation payments are released by Site engineers as per agreement clauses timely, but when it comes to recovery against de-escalation, action is being taken only after vigilance observation or at the time of final payment.

  24. Observations-CTE Type… • Escalation payment made in contravention to agreement clause. • The lead partner of the JV Consortium is absent in the site activities and the other in- experienced partner is executing the work, thereby, causing delay. • EOT cases not processed in time. Penalties not levied as per agreement provisions.

  25. POINTS TO PONDER • What should be the appropriate safeguard against the failure of the consultant/contractor? • How to make tender document unambiguous? • How to bring uniformity in dealing with the ambiguous provisions in the tender ? • How to ensure timely completion and commissioning of the projects and procurement ? • What should be the effective monitoring tool for project management? • How to enhance co-ordination amongst various Departments of AAI / Airports for effective management of contracts.

  26. SOME SUGGESTIONS ! • Specific penalty clause may be incorporated in the Consultancy Agreement to avoid poor planning / lack of supervision and to increase accountability of Consultant. • The ambiguous clauses, if any, need to be referred to NIT approving Authority only for necessary clarification / decision.

  27. SOME SUGGESTIONS… • Realistic time frame for execution of the project to be considered based on specific site / soil factors prior to accord of AA & ES. • The AA & ES Authority need to freeze maximum permissible time frame for the Project. • A separate penalty clause for delay in execution of the Project need to be specified in the Agreement to avoid time and cost overrun.

  28. Contd.. • There should be no major deviation in scope of work after award of work. • The E & M equipments shall be brought to site in synchronization with the Civil / Electrical works to avoid possible damages/lapse of warranty / Guarantee etc..

  29. Contd.. • All records / files to be preserved meticulously. • Hindrances need to be recorded properly to enable scrutiny during sanction of EOT. • OPMS need to be operationalized for effective monitoring of the projects.

  30. GENERAL GUIDANCEcheck points duringexecution stage • Conditions regarding Insurance Policies, P.G., Labour licence etc. complied with. • Bank Guarantees are duly verified • Recoveries are made as per Contract. • Major Deviations should not be done. • Mandatory Tests are carried out. • Proper record of hindrances maintained.

  31. AREAS TO BE COVERED IN THE WORKSHOP • Time & Cost Overrun in Projects – Causes and solutions by ED(Engg.) • Irregularities in Engineering works by GM(Vigilance) • Finance control in Project management by ED(Fin.) • Implementation of Contract clauses by RED(NR)) • Panel discussion.

  32. CONCLUSION • We must adopt vigilance as an attitude and do not view it as restrictive and punitive. • We must learn to integrate vigilance in our day to day working.

  33. THANK YOU!cvoaai@aai.aero

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