Pub­lic Pro­cure­ment Or­der 2017

Lo­cal sup­pli­ers to gain from the new Pro­cure­ment Pol­icy

India Strategic - - CONTENTS - By Amit Cow­shish

NEW DELHI. The Pub­lic Pro­cure­ment (Pref­er­ence to Make in In­dia) Or­der, 2017 is­sued by the De­part­ment of In­dus­trial Pol­icy and Pro­mo­tion (DIPP) June 15, gives the ‘lo­cal sup­pli­ers’ much to cheer about.

They alone will be el­i­gi­ble to par­tic­i­pate in ten­ders for pro­cure­ment of goods by the procur­ing en­ti­ties of the cen­tral gov­ern­ment, in­clud­ing the pub­lic sec­tor un­der­tak­ings, if the es­ti­mated value of pro­cure­ment is be­tween ` 500,000 (ap­prox­i­mately $7,800) and ` 50,00,000 (or $78,000).

But this is con­tin­gent upon a suf­fi­ciently large sup­ply base be­ing avail­able to gen­er­ate com­pe­ti­tion. It re­mains to be seen how the procur­ing en­ti­ties will as­sess whether this con­di­tion is met in in­di­vid­ual cases.

While pro­cure­ments be­low Rs Five lakh are ex­empted from op­er­a­tion of the June 15 or­der, there is more good news in re­la­tion to the pro­cure­ments ex­ceed­ing Rs Fifty lakh.

If in any such pro­cure­ment, the low­est bid­der turns out to be a non-lo­cal sup­plier, the lo­cal sup­plier par­tic­i­pat­ing in the same ten­der whose bid is low­est among all lo­cal sup­pli­ers and who hap­pens to be within a mar­gin of 20 per cent of the over­all low­est bid, will get an op­por­tu­nity to match the low­est bid to win the con­tract for 50 per cent of the to­tal or­der quan­tity.

This will, of course, be pos­si­ble only if the quan­tity is di­vis­i­ble. If it is not, the low­est among the lo­cal bid­ders could walk away with the en­tire con­tract sub­ject to his bid be­ing within the afore­said mar­gin of pur­chase pref­er­ence and his orig­i­nal of­fer be­ing within 20 per cent of the over­all low­est bid of the non-lo­cal sup­plier.

Sub­ject to th­ese two con­di­tions be­ing met, the op­por­tu­nity will pass on to the next higher bid­ders, one by one, if the low­est lo­cal bid­der does not agree to match the over­all low­est bid or sup­ply­ing the en­tire 50 per cent of the to­tal or­der quan­tity.

On the flip side, it will not be enough to be a com­pany reg­is­tered in In­dia to qual­ify as a lo­cal sup­plier.

To qual­ify as a lo­cal sup­plier, it will be nec­es­sary to en­sure that the prod­uct of­fered for pro­cure­ment has a lo­cal con­tent of a min­i­mum of 50 per cent, cal­cu­lated as a per­cent­age of the value added in In­dia to the to­tal value of the prod­uct or ser­vice.

The June 15 or­der lays down a sim­ple for­mula for work­ing out the ex­tent of value ad­di­tion: the to­tal value of the prod­uct (ex­clud­ing the net do­mes­tic in­di­rect taxes paid) mi­nus the value of the im­ported con­tent (in­clud­ing all cus­tom du­ties).

The per­cent­ages re­lated to lo­cal con­tent as well as the mar­gin of price pref­er­ences can be re­duced by the procur­ing en­ti­ties. Con­versely, the re­quire­ment of the min­i­mum lo­cal con­tent can also be in­creased by them.

They could also exempt any prod­uct or sup­ply­ing en­tity or a class of items from the op­er­a­tion of the or­der or any part thereof.

The lo­cal sup­pli­ers can ex­pect other el­i­gi­bil­ity con­di­tions, such as the turnover, pro­duc­tion ca­pac­ity and fi­nan­cial strength, to be made more re­al­is­tic by the procur­ing en­ti­ties to avoid un­rea­son­able ex­clu­sion from the ten­der­ing process.

Proof of sup­ply to other coun­tries will no more be a pre-con­di­tion for el­i­gi­bil­ity as a prospec­tive lo­cal sup­plier. Talk­ing of the other coun­tries, at the dis­cre­tion of the procur­ing en­ti­ties, sup­pli­ers from the coun­tries where the In­dian sup­pli­ers are not per­mit­ted to com­pete could be de­clared as in­el­i­gi­ble to bid.

What­ever pa­ram­e­ters are adopted by a procur­ing en­tity in re­spect of a par­tic­u­lar pro­cure­ment will need to be dis­closed up­front in the no­tice invit­ing ten­ders and there­after will not be tin­kered with dur­ing the en­tire process till award of the con­tract.

To the ex­tent fea­si­ble, the Gov­ern­ment e-mar­ket­place (GeM) por­tal will mark the prod­ucts

which meet the min­i­mum lo­cal con­tent while regis­ter­ing them for dis­play and pro­vide for au­to­mated com­par­i­son with pur­chase pref­er­ence and with­out pur­chase pref­er­ence.

It will also be pos­si­ble to ob­tain will­ing­ness of the sup­plier to ex­er­cise the op­tion for price pref­er­ence through the GeM por­tal.

The sup­pli­ers will be able to self­cer­tify the ex­tent of lo­cal con­tent in the prod­uct, though for higher value pro­cure­ments, ex­ceed­ing 10 crore ($15 mil­lion), such claims will need to be sup­ported by a cer­tifi­cate from the statu­tory au­di­tor or the cost ac­coun­tant.

Th­ese claims will be sub­jected to ran­dom ver­i­fi­ca­tions by the in­ter­nal and ex­ter­nal ex­perts ap­pointed by the procur­ing en­ti­ties and, of course, any dec­la­ra­tion found to be false could re­sult in de­bar­ment.

All th­ese mea­sures should dras­ti­cally cut down the pro­cess­ing time.

Im­ple­men­ta­tion of the or­der will be over­seen by a com­mit­tee headed by the Sec­re­tary DIPP with a host of other sec­re­taries be­ing its mem­bers. The com­mit­tee will have Joint Sec­re­tary, DIPP as its mem­ber sec­re­tary.

The or­der pro­vides a very flex­i­ble pol­icy frame­work for en­cour­ag­ing pro­cure­ment from lo­cal sources but it is still work in progress.

One, the way the or­der is worded leaves some doubt whether the pur­chase pref­er­ence and mar­gin of price pref­er­ence are ap­pli­ca­ble to pro­cure­ment of ser­vices also. This con­fu­sion needs to be put at rest im­me­di­ately.

Two, the stand­ing com­mit­tee will need to iden­tify ‘nodal min­istry’ for a cat­e­gory of sim­i­lar items and for­mally no­tify this de­ci­sion so that the nodal min­istry could then pro­ceed with the task of de­cid­ing the req­ui­site level of lo­cal con­tent and the mar­gin of price pref­er­ence for that par­tic­u­lar cat­e­gory of items.

There is a case, for ex­am­ple, for mak­ing the min­istry of de­fence the nodal min­istry for procur­ing goods for the para­mil­i­tary forces also. This will rid the min­istry of home af­fairs of the mun­dane task of pro­cure­ment, bring in econ­omy of scales and, most im­por­tantly, al­low the min­istry to fo­cus on in­ter­nal se­cu­rity.

Other min­istries and de­part­ments could also be sim­i­larly clubbed.

Three, reser­va­tion of pro­cure­ments be­tween Rs Five lakh and Rs Fifty lakh for the lo­cal sup­pli­ers is con­tin­gent upon the sup­ply base be­ing suf­fi­ciently large to en­sure fair com­pe­ti­tion. Car­ry­ing out an as­sess­ment of the sup­plier base is an ar­du­ous task by any stretch of imag­i­na­tion. This could de­lay the roll out of the scheme.

Four, all min­istries and de­part­ments which have for­mu­lated their own pro­cure­ment man­u­als in con­so­nance with the pro­vi­sions of the Gen­eral Fi­nan­cial Rules (GFR), un­der which the June 15 or­der has been is­sued, will need to amend those man­u­als.

The min­istry of de­fence alone has at least four such man­u­als: one each for rev­enue and cap­i­tal pro­cure­ment for the armed forces and one each for the ord­nance fac­to­ries and the R&D es­tab­lish­ment.

It will take some do­ing to mod­ify all th­ese man­u­als and also to iden­tify and im­ple­ment other steps re­quired to op­er­a­tionalise the or­der.

The lo­cal sup­pli­ers have an equal, if not a greater, stake in im­ple­men­ta­tion of the or­der. It is im­por­tant that they pro­vide spe­cific in­puts not only con­cern­ing the is­sues that arise di­rectly from the text of the or­der but also on larger is­sues that are crit­i­cal for cre­at­ing an in­dus­try-friendly eco-sys­tem to the stand­ing com­mit­tee as well as the in­di­vid­ual procur­ing en­ti­ties like de­fence and rail­ways.

With large bud­gets to spend on pro­cure­ment, suc­cess in im­ple­men­ta­tion of the pref­er­ence pol­icy will de­pend on how it is man­aged by th­ese min­istries in the com­ing weeks.

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