Probity in Public Procurement

In order to minimize the risk of corruption in public procurement, the managements/decision makers should examine their procurement system for potential vulnerabilities. Some risk assessment exercise can be done by the procuring agencies in following phases of tendering process:

A. Pre-Tendering phase

This phase includes the selection of projects as well as the identification of funding sources for the project. The preliminary phase is critical for setting the tone for the subsequent phases. Several points that need to be taken care / ascertained during pre-tendering stage are:

i) Need generation is genuine. The project conceptualization and its approval process do not lack clear and objective criteria.

ii) The component parts of the project are not too numerous and small. This should be realistic and optimal so that complexity is avoided during tendering process.

iii) Formulation of adequate system to monitor the decentralized units which are responsible for project/procurement.

iv) Reassess those procurement plans which rely too heavily on local competitive bidding only.

v) Cost estimate are realistic and based on Last Purchase Rates and also consistent with market rates.

B. Tendering Phase

i. Advertisement : The widespread, public advertisement of an invitation to bid for public contracts is an essential element of

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transparency and an indispensable measure which is needed to alert interested bidders of an opportunity to bid on a public contract. It needs to be ascertained that advertisements are not done in only those areas/fields where the prospects of response is least. To address the above issue, wide publicity is must and multiple mode of advertisement is desirable. Moreover, before opening of tenders, the tendering officials should ascertain that advertisement/publication of notice has been actually done as per plan. The advertisement should not create a small bit of confusion. It should contain important information like contact details of purchasing department, necessary timelines, unambiguous scope of work, eligibility criteria, etc.

ii. Eligibility Criteria : For high-valued or technically complex public contracts, it is common for the procuring entry to apply prequalification of bidders to ensure that only those qualified bidders, that have the necessary experience, capability and resources to perform the contract successfully, are allowed to bid on the contract. Bidders must meet certain contract-specific qualification requirements in order to be prequalified to bid. This stage is designed to screen out frivolous, unreliable or unqualified firms. However, it may also be used as a device to favour a small subset of bidders or to screen out other qualified bidders. Following scenarios require prime attention –

a. Criteria are stated in vague or unclear terms or are unrelated to the contract to be awarded.

b. The prequalification requirements bear no relation to the performance requirements of the contract. (Ex: for a construction contract estimated to cost Rs. 10 Crore, to be constructed over a period of two years, applicants are required to have access to cash equal to Rs. 15 Crore, whereas a much lower level of cash flow would be adequate to perform the contract satisfactorily)

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c. Pre-qualification are kept stringent which result in disqualification of all bidders. Subsequently the retendering is done with relaxed PQ criteria due to which limited bidders get qualified.

d. The method of evaluation of applicants’ qualifications is not stated in the prequalification documents or the method to be used is subjective, such as being based on an arbitrary merit points system.

e. Bidders are pre-qualified for certain contracts but the subsequently fail to bid for all contracts for which they have been pre-qualified.

iii. Bidding process : Some of the issues related to bidding process that need to be checked are –

a. Clear cut clarifications are not given to bidders due to which some bidders get disqualified on account of ambiguity.

b. Substantial time delay between the deadline for submission of bids and the technical bid opening.

c. Bids are not opened in public

d. The procuring entity fails to keep accurate minutes of pre-bid meetings, including questions and answers, and to distribute them promptly to all bidders

e. Price discounts in one or more bids are not read out at the public bid opening, but are subsequently evaluated, altering the ranking of the bids.

f. Generally bids are serially arranged and opened accordingly. If the last bid opened by a procurement agency always emerge as L-1 and there is minor price difference between L-1 and L-2 bidders; then occurrence of such pattern requires special attention.

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iv. Bid Evaluation : The evaluation of bids is the most important phase of a public procurement procedure, as it is at this juncture that the procuring entity makes the decision as to which of the competing bidders will be awarded the contract. Not all evaluation systems are created equal and some types of evaluation systems are particularly prone to exploitation because of the excessive discretion. While price is the most widely-used evaluation criterion in public procurement, other, non-price criteria are also commonly applied; these may include the delivery time, payment schedule, the operating costs of the equipment, efficiency, the compatibility of the equipment offered with existing equipment owned and operated by the procuring entity, the availability of the after-sales service and spare parts, training, safety, environmental impact, etc. The extent to which these non-price evaluation criteria are quantified and expressed in

monetary terms in bid evaluation, the evaluation process gets leveraged by subjectivity and

discretion.

C. Post-Tendering Phase

Minor change in terms & conditions during post tender stage can have significant financial implications. One can see these financial implications as a notional but these can substantially benefit the successful bidder only. The general thinking should be – if all bidders were provided same opportunity to avail the modified terms & conditions of tender, then their offer price could have been more competitive.

An appropriately structured e-procurement system improves the monitoring and reporting capabilities of government and thus oversight of the procurement process. Oversight can be strengthened through the conduct of random forensic audits. Audits are a routine control in the public procurement process. The routine audits should be conducted but can also contain forensic features build into their terms of reference. These forensic features drive auditors to ‘look behind the paper’ and verify, for

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example, the authenticity of invoices submitted by contracts, verify that material noted on the invoices has been delivered, installed or build and also may include site visit is to determine if contractors actually exist or are shell enterprises. Random selection puts potential fraudsters on guard and reduces their expected gain.

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