In some ways, the Public Procurement Bill 2011 is a testament to the fact that the Government’s concern on governmental corruption pre-dates the Anna Hazare imbroglio. The Bill, which was put out in the public domain a few weeks ago is exhaustive in depth and breadth. The question of course is when will it graduate from being a Draft and get tabled (there are several dozen draft Bills a long way from consummation) and cleared. Moreover, will it end up being the second or third body overseeing governance of the Government with as much success? This is the first of a two-part examination of the Bill.
From the Government’s own estimates, the scale of public procurement can vary between 15 to 20% of GDP (a margin as wide as that once again highlights the problem with Government data) or about Rs. 12 to 15 lakh crore per annum. The Organisation for Economic Co-operation and Development (OECD) has estimated that losses due to inappropriate procedures can be 20 to 30 percent. So we are talking $100 bn plus of potential losses, is our guesstimate.

What’s not a guesstimate is the creation of a bureaucratic structure which will oversee and manage the functions of the Bill. While the mandate and powers of this organisation are different, it would nevertheless join the existing Central Vigilance Commission (CVC), the proposed Lokpal Bill and resultant quasi-judicial body and existing Lokayuktas in various states as another body that will police or partly-police Government employees.

Tracing The Roots Of The Bill

Work began a year ago after Planning Commission Deputy Chairman Montek Singh Ahluwalia asked Commission Adviser Gajendra Haldea to write out a Bill that oversaw the hundreds of billions of dollars of public procurement expenditure that a country like India incurs. Prime Minister Manmohan Singh referred to it in his August Independence Day speech and UPA Chairperson Sonia Gandhi talked about it in December 2010. The sequence of events also gives you a sense on the passage of lawmaking.

To the naysayers who might argue that a Bill is not necessary and adds to the labyrinth of existing laws, for this one, there is very strong international precedence. Some 50 countries’ procurement have laws, ranging from the United States to Canada and European Union countries to China and even Afghanistan.

In India, expectedly, procurement is governed by administrative rules and procedures which only attract departmental action in case of violation. As the prelude to the Bill points out, “These rules do not create any rights in favour of the public in general, and the potential suppliers in particular. Nor do they provide for a fair and effective mechanism for dispute resolution or penal consequences.

Highlights Of The Bill

Here are some of the sections that merit deeper study. Some sections like the focus on ‘least cost’ as a founding principle of the Bill are highlighted.

1. The objective: to create a fair, transparent and competitive environment that would ensure procurement of quality works, goods and services at the least cost (The Bill also provides for rejection of bids which are 'abnormally' low cost')

2. The Bill exempts procurements relating to national defence, national security, emergencies, natural calamities and epidemics from the mandatory provisions of the proposed Act. However, it empowers the Government to apply selected provisions of the Act to such exempted procurements. It covers Public Private Partnerships (PPPs)

3. The Bill recognises the various methods to be used for procurement of different categories of works, goods and services.

4. The Bill provides a framework law for setting out the basic legal rules governing public procurement. It would need to be supplemented by detailed rules to be made in line with international best practices. The Bill, therefore, empowers the Government to make Procurement Rules for dealing with the requisite details of procurement systems.

5. The Bill provides for a Department of Procurement Policy, inspired by the American Administrator for Federal Procurement Policy and the British Office of Government Business. The Bill restrains the Department from interfering with the procurement process of the procuring entities. A Procurement Regulatory Authority and a Tribunal for Public Procurement will also be created.

6. The Bill provides for prescribing the standard terms that would form part of the contracts of different categories of procurement. The Bill also provides for standardising the formats for different types of procurement contracts. Such standardisation is expected to reduce the transaction costs of procurement, besides enhancing competition and transparency while minimising the potential for corruption.

7. It also allows for competitive negotiations and single source procurement in exceptional circumstances and direct purchase from a retail network.

Coming Soon: Details on procurement methodology in the Bill.