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Mohana M,
Editor, Clean India Journal

It is just about a year since the New Procurement Guidelines for tenders were laid down highlighting alternative methods of procurement, bidding and on-time payments to contractors. But…

The sweeping reforms introduced in October 2021 regarding Quality-cum-Cost based selection of bidders for works and non-consultancy services through alternative procurement methods went altogether unnoticed. Even though the new reforms spelled the route to ‘quality-oriented procurement’, a large part of tendering is still driven by L1 (Least Cost Selection method).

Some of the major grievances expressed against projects awarded under L1 is that it does not consider quality parameters, manpower-technology quotients, technological interventions and mechanisation vs manual services, among others.

L1, though termed as least cost, in actual terms, increases overall project costs for both the bidder and the authority floating the bid. For this very reason, it also discourages bidders with cost-efficient innovative solutions from participating in such projects.

Bidders in the L1 category have burnt their fingers on the penalty clauses leading to untimely termination of contract, thus causing losses in terms of machinery procured, employees engaged, systems implemented and more. Less than a handful of such contracts in many segments have lasted their full term.

In fact, in the long run, all such projects drain out national funds and cause losses to the country at large.

Inadvertently, the L1 procurement process has seeped into the private sector as well, with contracts being awarded to product suppliers or service providers even at negligible margin differences. The qualification criteria get unduly restricted to monetary value rather than market value or quality delivery.

Great leaders in the corporate world were of the opinion that ‘L1 should move to Q1 or T1’. Be it Q1 or T1, the shortcomings in the system of procurement need to be adaptive to present market conditions, and flexible.

Take for example the cost of cleaning equipment procured for maintaining any given premises. The kind or type of machines to be used vary in cost, based on their application and the quality of results required. Further, L1 does not take into consideration the spare parts replacement costs or machine maintenance costs. Such costs are shifted to the service provider. This again puts a strain on the service provider and discourages deployment of quality machines where margins are low.

In some cases, the management fees are practically 0% or 0.001%.

Coming to the payment structure, under the new reforms, ad-hoc payment of not less than 75% of eligible running account bill/due stage payment is to be made within 10 working days of bill submission. The remaining payment is to be made within 28 working days of this day (after final checking of
the bill).

The guidelines have further instructed that public authorities may put in place a provision for payment of interest in case of delayed payment of bills by more than 30 working days after the contractor submits the bill.

According to the guidelines, product/service contracts are supposed to include a clause about payment within 30 days or 60 days or even 90 days. However, with no mandate in place, contractors delay payments by even eight to nine months! This is just the beginning of a vicious cycle leading to cutting corners and sub-standard quality delivery.

Even before the new procurement reforms are implemented, the process of procuring a machine or even hiring a service provider needs to be framed in consultation with subject matter experts.

The mathematics of procurement of products and services is bracing to get more intricate as the new goals of ESG and Net Zero pick up pace.

Mohana M, Editor, Clean India Journal.

 

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