Workshop on Tender and Contract Management - Vigilance Conclave for CPSEs under Ministry of Steel

1. WELCOME

2. WELCOME OFFICIALS Vigilance Conclave for CPSEs under Ministry of Steel V. RAMACHANDRAN Ex- IEM, HAL,UBOI DG, RDSO Retd. [Former CTE/CVC] 05 SEP. 2019 HYDERABAD

3. Workshop on Tender and Contract Management Vigilance Conclave 05 SEP. 2019 HYDERABAD

4. Workshop - Public Procurement • TODAY’S TOPICS • WORKSHOP - • 1) To create a positive appreciation amongst officers how decision making can be efficient and yet transparent. • 2) Normal pitfalls in Procurement and Works contracts and how to avoid the same. • 3) Do’s and Don’ts in various stages of Contract viz. Tendering, Award of Contract and it’s Execution etc. • 4) Milestones in Tendering, awarding and Execution process of Contracts, timelines & delay at any stage and its effect on escalation clause. • 5) Role of CTE type inspections in improving contract management. • Quality and Cost Based Selection (QCBS) • Q & A Session • Basic Concepts -Contract Management; Requirements for Drafting of Good Commercial Contracts. • Terms of contracts: definition, requirements, warranty, guarantee, condition, performance, etc • Other risk conditions: Force majeure, Variations/Escalations, Risk purchase, LD, RP claims, Adv payment, BG verification etc. • Practical Issues on Penalty, Arbitration & Dispute Settlement • CASE_STUDY(S)_ on Risk purchase & Arbitration • Security agreements: NDA & Integrity pact • Q & A Session

5. Workshop - Public Procurement • Department of Expenditure has issued Manuals– • on Policies and Procedures for Procurement of Goods, Works and • hiring of Consultants, in conformity with the General Financial Rules (GFR), 2017. • (to serve as guideline & to ensure that procurements are made following a uniform, systematic, efficient and cost-effective procedure and also to ensure fair and equitable treatment of service providers) • Some of the important changes in GFR 2017 include – • 1. introduction of Central Public Procurement Portal (CPPP) • 2. Government e-Marketplace (GeM) • 3. preferential market access for micro and small enterprises • 4. preference for domestic manufacturers of electronic goods • 5. inclusion of integrity Pact, etc. • Basic Concepts -Contract Management; Requirements for Drafting of Good Commercial Contracts. • Terms of contracts: definition, requirements, warranty, guarantee, condition, performance, etc • Other risk conditions: Force majeure, Variations/Escalations, Risk purchase, LD, RP claims, Adv payment, BG verification etc. • Practical Issues on Penalty, Arbitration & Dispute Settlement • CASE_STUDY(S)_ on Risk purchase & Arbitration • Security agreements: NDA & Integrity pact • Q & A Session

6. Workshop - Public Procurement • All instructions are in consonance with – • fundamental principles of transparency, • fairness, • competition, • economy, • efficiency • and • accountability. • Basic Concepts -Contract Management; Requirements for Drafting of Good Commercial Contracts. • Terms of contracts: definition, requirements, warranty, guarantee, condition, performance, etc • Other risk conditions: Force majeure, Variations/Escalations, Risk purchase, LD, RP claims, Adv payment, BG verification etc. • Practical Issues on Penalty, Arbitration & Dispute Settlement • CASE_STUDY(S)_ on Risk purchase & Arbitration • Security agreements: NDA & Integrity pact • Q & A Session

7. Workshop - Public Procurement • Manuals are to be taken as generic guidelines, which have to be necessarily broad in nature AND so is GFR 2017. • Ministries/Departments are to supplement this manual to suit their local/specialized needs, by issuing their own detailed manuals (including customized formats); Standard Bidding Documents and Schedule of Procurement Powers to serve as detailed instructions for their own procuring officers. • Presently there is no law exclusively governing public procurement. • Basic Concepts -Contract Management; Requirements for Drafting of Good Commercial Contracts. • Terms of contracts: definition, requirements, warranty, guarantee, condition, performance, etc • Other risk conditions: Force majeure, Variations/Escalations, Risk purchase, LD, RP claims, Adv payment, BG verification etc. • Practical Issues on Penalty, Arbitration & Dispute Settlement • CASE_STUDY(S)_ on Risk purchase & Arbitration • Security agreements: NDA & Integrity pact • Q & A Session

8. Laws /Guidelines governing Public Procurement Key rules, legislations and directives which guide public procurement process are: Indian Contract Act, 1872 Sales of Goods Act, 1930 General Financial Rules (GFR) 2017 as amended to date Arbitration and Conciliation Act, 1996 as amended in 2015 Competition Act 2002 as amended with Competition (Amendment) Act 2007 The Information Technology Act 2000 Export Import Policy of India 8

9. CANONS OF OF PUBLIC PROCUREMENT • TO PROCURE WORK, MATERIAL, SERVICES OF THE SPECIFIED QUALITY WITHIN THE SPECIFIED TIME AT THE MOST COMPETITIVE PRICES IN A FAIR, JUST & TRANSPARENTMANNER ----

10. CANONS OF OF PUBLIC PROCUREMENT • FIVE WATCH WORDS • TRANSPARENCY • FAIRNESS • VALUE FOR MONEY • QUALITY • TIME

11. PUBLIC PROCUREMENT • In every procurement, public or private, the basic aim is to achieve just the right balance between costs and requirements concerning the following FIVE parameters called the Five R’s of procurement.

12. Transparency in Public Procurement PRINCIPLE of 5 R ’s • RIGHT MATERIAL • RIGHT PRICE • RIGHT VENDOR • RIGHTPLACE • RIGHT TIME

14. CANONS OF PUBLIC PROCUREMENTRECENT INITIATIVES TO PROMOTE TRANSPARENCY & OPENENSS RIGHT TO INFORMATION ACT 2005 -OBJECTIVE- TO PROMOTE OPENNESS, TRANSPARENCY & ACCOUNTABILITY -- IN ADMINISTRATION.

15. Transparency Principle • In essence, Transparency Principleenjoins upon the Procuring Authorities’ to do only that which it had professed to do as pre-declared in the relevant published documents and not to do anything that had not been so declared’.

16. PUBLIC PROCUREMENT • Fundamental principleunderlying Public Procurement : - “Every authoritydelegated with the financial powers of procuring goods in public interest shall have the responsibilityand accountabilityto bring efficiency, economy, transparencyin matters relating to public procurement andfor fair and equitable treatment of suppliers and promotion of competitionin public procurement”. (Rule 144, GFR 2017).

17. PUBLIC PROCUREMENT • Rule 144 of GFR enunciates the fundamentalprinciplesof public buying : • (a) Adequate information and announcement • (b) Transparencyof bidding as well as evaluation process. • (c) Accountability • (d) Non-restrictive bidding conditions to unlock market • (e) Non-discriminatory practices to provide equality of opportunity.

18. Value for Money (Vfm) • VfMmeans the effective, efficient, and economic use of resources, which may involve the evaluation of relevant costs and benefits, along with an assessment of risks, non-price attributes (e.g. in goods and/or services that contain recyclable content, are recyclable, minimise waste and greenhouse gas emissions, conserve energy and water and minimize habitat destruction and environmental degradation, are non- toxic etc.) and/or life cycle costs, as appropriate. Price alone may not necessarily represent VfM.

19. Quality and Cost Based Selection (QCBS) • Selection method used for highly technically complex and critical assignments where it is justifiable to pay appropriately higher price for higher quality of proposal.

20. Quality and Cost Based Selection (QCBS) • In QCBS selection, minimum qualifying marks (normally 70-80 (Seventy – Eighty) out of maximum 100 (Hundred) marks) as benchmark for quality of the technical proposal will be prescribed and indicated in the RfP along with a scheme for allotting marks for various technical criteria/attributes. • During evaluation of technical proposal, quality score is assigned out of the maximum 100 (Hundred) marks, to each of the responsive bids, as per the scheme laid down in the RfP.

21. Quality and Cost Based Selection (QCBS) • Those who are qualifying as per the technical evaluation criteria are considered as technically responsive and the rest would be considered technically non-responsiveand would be dropped from the list. • Financial proposals are then opened for only eligible and responsive offers and other financial offers are returned unopened to bidders.

22. Quality and Cost Based Selection (QCBS) • The financial proposals are also given cost-scorebased on relative ranking of prices, with 100 (Hundred) marks for the lowest and pro-rated lower marks for higher priced offers. • The total score shall be obtained by weighting the quality and cost scores and adding them.

23. Quality and Cost Based Selection (QCBS) • The weight for the “cost” shall be chosen taking into account the complexity of the assignment and the relative importanceof quality. • The proposed weightings for quality and cost shall be specified in the RfP. • The firm obtaining the highest total score shall be selected.

24. Quality and Cost Based Selection (QCBS) • For – • High complex/ • downstream consequences/ • specialisedassignments, -- • one should use QCBSwithhigher technical weightage such as – • Quality/Cost–Weighting (%) 80/20

25. Quality and Cost Based Selection (QCBS) • The weight given to the technical score should not be confused with the minimum qualifying technical score (though they may in some case be equal). • For example, the weightagegiven to cost score may be 30% (Thirty per cent) and to technical score 70% (Seventy per cent, but weightage to technical score should never be more than 80%). The ratio of weightages for cost and technical score could also be 40:60 (Forty:Sixty) or 50:50 (Fifty:Fifty) etc.

26. Quality and Cost Based Selection (QCBS) - Example • Minimumqualifying marks for technical qualifications –75 • Weightage technical : financial - 70 : 30. • Proposals, A,B,C& D received. • A,B,C&D Tech. Scores –75, 80, 90 & 70. • Bid D Rejected forTechnical marks less than 75, Price Bid returned unopened. • A,B&C -Technically suitable. • Financial bids opened after notifying the date and time of bid opening to A,B&C.

27. Quality and Cost Based Selection (QCBS) - Example • Evaluated quoted prices for A ,B & C -- • Proposal Evaluated cost • A - Rs.120. • B - Rs.100. • C - Rs.110. • Using the formula LEC / EC, where LEC stands for lowest evaluated cost and EC stands for evaluated cost, points for financial proposals: • A : 100 / 120 = 83 points • B : 100 / 100 = 100 points • C : 100 / 110 = 91 points

28. Quality and Cost Based Selection (QCBS) - Example • Calculated combined technical and financial scores & Ranking : • Bid A: 75x0.70 + 83x0.30 = 77.4pts. H3 • Bid B: 80x0.70 + 100x0.30 = 86pts. H2 • Bid C: 90x0.70 + 91x0.30 = 90.3pts. H1 • Bid/ Proposal C at the evaluated cost of Rs.110 was, therefore, declared as winner and recommended for negotiations/approval, to the competent authority.

29. TRANSPARENCY& FAIRNESS WHAT IS --- TRANSPARENCY, & FAIR TREATMENT IN PUBLIC PROCUREMENT ?.

30. TRANSPARENCY & FAIRNESS IN PUBLIC PROCUREMENT • Whatever pre-qualification, evaluation/exclusion criteria, etc. which the organization wants to adopt should be made explicitat the time of inviting tendersso that basic concept of transparency and interests of equity and fairness are satisfied. • The acceptance/rejection of any bid should not be arbitrary but on justified groundsas per the laid down specifications, evaluation/exclusion criteria leaving no room for complaints. • (No.98/ORD/1 dated 9th July 2003)

31. TRANSPARENCY & FAIRNESSINPUBLIC PROCUREMENT • To create a positive appreciation amongst officers how decision making can be efficient and yet transparent. • PROPER TECHNICAL EVALUATION • Case Study -1

32. Doctrine of Contra- ProferentemAmbiguity in Clauses • Disputes often occur in civil construction contracts because of contract clauses which can be interpreted in more than one way. • It becomes more difficult to resolve when various interpretations argued by the parties to the dispute are equally good, reasonable and plausible. • In such circumstances, the Doctrine of Contra- Proferentembecomes a handy tool to the arbitrator or the judge to decide the matter in accordance with principlesof– • equity, good conscience and justice.

33. Ambiguity in Clauses • A MOTHER BEATS UP HER DAUGHTER BECAUSE SHE WAS DRUNK.

34. Thank you.

36. Doctrine of Contra- Proferentem • Doctrine, originated from insurance contracts. • When a contract provision can be interpreted in more than one way, the Court will prefer that interpretation which is more favourable to the party who has not drafted the agreement (or simply that interpretation which goes against the party who has inserted / insisted on inclusion of the alleged ambiguous clause in the agreement).

37. Doctrine of Contra- Proferentem • Rationalebehind this doctrine emanate from the fact that parties to the agreement are often not in equal position. • One party dominates the execution of the agreement while the other party merely signs on the dotted line. • Government contracts, wherein the tender notices floated by Government agencies prescribes that the bidder will not put any condition in the tender.Bidder is simply made to sign on the dotted lines and no deviation from the tender conditions is permitted. • Contra Proferentemplaces the cost of losses on the partywho was in the best position to avoid the harm. • The Courts/Arbitrators expect that the party who drafts the agreementshall take due care and caution and shall not insert ambiguous provisions in the agreement.

38. TRANSPARENCY & FAIRNESSINPUBLIC PROCUREMENT • Case Study -2 • DECISION MAKING • Technical Evaluation

39. PROPER TECHNICAL EVALUATION

40. PROPER TECHNICAL EVALUATION • The offer of M/s. X is not rejected on Turnover clause of essential requirements i.e. Average annual turnover of the past three financial years must be more than Rs. 1.84 Crores. CA certificate/ Audited accounts shall be submitted”. Turnover certificate of CA has been accepted. • M/s. XXXX has submitted authorization certificates from 2-OEMs, Crompton and Pyrotech. • Party has submitted all technical data sheets and test certificates of Crompton make only. The party has submitted Trademark certificate of Crompton only, technical data sheets and test certificates for none of the Pyrotech make has been submitted. Trademark certificate of Pyrotech is also not submitted.

41. PROPER TECHNICAL EVALUATION • M/s. X has not submitted undertakingfor 5-years warranty as per RFQ for all the items. • Party has replied on the excel sheet of HAL query that “Confirmation from CG Attached herewith in HAL Covering letter from CG’ and the attached letter is on Osram letter head which is a letter of association of Osram with Crompton and not a warranty certificate (Attached for reference). • Warranty certificate for all the items is the major requirement of RFQ. Hence Rejected.

42. Workshop - Public Procurement • Thereafter, after IEM intervention, HAL accepted their mistake for Rejecting offer on account of Warranty requirement not met.

43. TRANSPARENCY & FAIRNESSINPUBLIC PROCUREMENT • Case Study -3 • DECISION MAKING • Procurement of Automatic Mechanical Sampling System @ XCL

44. Automatic Mechanical Sampling System Gist of the Case : • A tender has been issued by XCL for the procurement and installation of an Automatic Mechanical Sampling System. • Against this tender, threeoffers were received. • Two of the offers were rejected as technically non-compliant to NIT conditions. • Thus, XCL was left with only a Single technically suitable offer. • One of the bidders whose offer has been declared as technically non-compliant is M/s E Crusher company (P) ltd. has raised a complaint.

45. Workshop - Public Procurement • M/s E Crusher company (P) ltd has alleged in his complaint that – • The NIT terms and conditions have been set & tailor made to suit M/s Advanced System Sampling Pvt. Ltd., Kolkata & eliminate other proven & prospective bidders from the competition. 
 • Though this was a high value tender, XCL did not keep any provision for Pre- Bid meeting to discuss with the prospective bidders on the terms & conditions set in the NIT.

46. Workshop - Public Procurement Provennesscriteria (Clause no. 3) set in the NIT document follows double standards, i.e.,- • the Firms whose products pertaining to the tendered items are either successfully in regular use in XCL or • considered proven by Head of Technical department on the basis of Performance Guarantee parameter shall be considered as proven. • **“NB” : “In any other case which does not fall in any of the other categories and where the tender committee feels that any source be declared proven,it may do so, with the approval of Director in Charge of MM Dept., in such cases reasons for doing so, may be justified with proper recording before obtaining approval.”

47. Workshop - Public Procurement • On the other hand, - for firms whose supplies are other than to XCL, shall have to furnish copy of Supply order/ PO Copies duringlast 5 years from the date of opening of Tender and performed satisfactorily for a period of not less than 3 years. **[Therefore, any tendered item, which is working satisfactorily since more than 5 years shall not be entitled to satisfy the Provenness Criteria as per NIT even if it satisfies the minimum 3 years performance criteria.] There is no such window of 5 years or 3 years set for the existing XCL suppliers. It was a deliberate attempt to allow & qualify only the existing XCL supplier for the tendered item, which violates the objective of Open tender policy/competitive bidding.

48. Automatic Mechanical Sampling System • The PO Copy submitted by the complainant meets the Provenness requirement of minimum 3 years satisfactory performance of the supplied equipment other than the fact that, the date of placement of order was more than 5 years old.

49. Automatic Mechanical Sampling System • Supplies pertained to a Greenfield Power Project like in DVC, ordered in 2009 & supplied in 2012. • Such Greenfield Project involve, various kinds of works by EPC contractor who supply the required equipment as and when required. • Supply made in 2012, meets the criterion of 5 years of POfor proven supply as per NIT. • The quoted price of the successful bidder is Rs1063,84,839.30, much higher than the already escalated estimated cost of Rs1026,80,000.00.

50. IEMopinion, operating part– • The offer of the complainant was not considered because the credentials submitted by the complainant from Mejia Thermal Power Plant of DVC was more than 5 years old and was not in line with the Provennes criteria of the NIT. • Supplies to Green field Power Project does involve supply by EPC contractor of equipment as and when required,- i.e.supply or before commissioning of the project. • FIRM got the Supply Order in 2009 but the material was actually supplied in 2012, which is well within the 5 year window, which meets the provency criterion.