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1 RELEVANT LEGISLATION
1.1 What is the relevant legislation and in outline what
does each piece of legislation cover?
The legal and regulatory public procurement framework in India
broadly comprises the following elements:
- Constitutional provisions: The Constitution of
India authorises the Central and State Governments to contract for
goods and services in the name of the President of India or the
Governor of the State (respectively), and directs autonomy in
public spending. However, it does not stipulate any procurement
policies or procedures. - Legislative provisions:
- There is no comprehensive central legislation exclusively
governing public procurement. Nonetheless, various procurement
rules and policies (see below) are guided by central legislations
such as the Contract Act 1872, Sale of Goods Act 1930, Prevention
of Corruption Act 1988, Arbitration and Conciliation Act 1996,
etc. - In addition, certain states, like Tamil Nadu, Karnataka, Andhra
Pradesh, Assam and Rajasthan have enacted state-specific
legislation such as the Tamil Nadu Transparency in Tenders Act,
1998, Karnataka Transparency in Public Procurement Act, 1999, the
Rajasthan Transparency in Public Procurement Act, 2012, etc., that
govern procedure for procurement in these states.
- There is no comprehensive central legislation exclusively
- Administrative guidelines:
- Comprehensive administrative rules and directives on financial
management and procedures for government procurement are contained
in the General Financial Rules (“GFR“)
initially implemented in 1947 and last modified in 2017. All
government purchases must strictly adhere to the principles
outlined in the GFR, which include specific rules on procurement of
goods and services and contract management. - In addition, the Manual for Procurement of Goods, 2017
(“MPG“) contains guidelines for the
purchase of goods, and the Delegation of Financial Powers Rules,
1978 (“DFPR“) delegate the
government’s financial powers to various ministries and
subordinate authorities. - This is supplemented by: (a) manuals and policies governing
procurement by individual ministries/ departments such as defence
and railways (see question 1.3 below); (b) guidelines issued by the
Directorate General of Supplies and Disposals
(“DGS&D“), the central purchase
organisation which undertakes procurement on behalf of
ministries/departments that lack the expertise to undertake
procurement themselves. - In 2017, the government issued the Public Procurement
(Preference to Make in India) Order 2017 which grants purchase
preference to local suppliers based on certain conditions so as to
promote manufacturing and production of goods and services in
India.
- Comprehensive administrative rules and directives on financial
- Overseers: The framework is bolstered by
authorities including: (a) the Central Vigilance Commission
(“CVC“) tasked with increasing
transparency and objectivity in public procurement; (b) the
Competition Commission of India (“CCI“)
which checks anti-competitive elements; and (c) the Central Bureau
of Investigation (“CBI“) engaged for
investigation and prosecution of the criminal activities in the
procurement process such as probity issues.
In summary, a public procurement process must adhere to: (i) GFR
and MPG; (ii) sector-specific procurement rules contained in
manuals published by the relevant ministry; and (iii)
state-specific legislation on transparency in procurement. As
between the procurer and the supplier, these rules above flow down
via a tender award and a contract.
1.2 What are the basic underlying principles of the
regime (e.g. value for money, equal treatment, transparency) and
are these principles relevant to the interpretation of the
legislation?
India’s regulatory and institutional framework seeks to
ensure responsibility, accountability and efficiency in the public
procurement regime. The underlying principle is to procure
materials/services of specified quality at the most competitive
prices in a transparent and non-arbitrary manner.
This is evident in the GFR which declares that all authorities
delegated with the financial powers of procuring goods in public
interest will be responsible and accountable to ensure efficiency,
economy and transparency, fair and equitable treatment of
suppliers, and the promotion of competition in public procurement.
To this end, specific measures have been set out under the GFR
including requirements pertaining to contents of the bidding
documents, description of the subject matter, quality and quantity
specifications, preparation of an annual procurement plan by all
ministries/departments, adherence to a code of integrity to address
probity issues, etc.
Further, the Supreme Court of India has recognised that while
the government must have freedom of contract:
- all contracts by the State should only be granted by public
auction/tenders to ensure complete transparency and provide all
eligible persons with the opportunity to participate in the
auction; - all official acts must be actuated by public interest, and
should inspire public confidence; - generally, the State should not grant contracts by private
negotiation (subject to certain exceptions based on the nature of
the trade, emergency circumstances, single source supply, etc.);
and - appearance of public justice is as important as doing justice
(i.e. government actions should not only be fair but should also be
seen to be fair, and nothing should be done which gives an
impression of bias, favouritism or nepotism).
1.3 Are there special rules in relation to procurement
in specific sectors or areas?
- Defence: Governed by the Defence Procurement
Procedure, 2016 (“DPP“) and the Defence
Procurement Manual 2009 (as amended from time to time) which
envisage various modes of procurement including indigenous,
capital, local purchase, etc. - Railways: Governed by a number of specific
laws and uses the Indian Railway e-Procurement Systems
(“IREPS“) for procurement. - Energy: New Exploration Licensing Policy
(“NELP“) under the Petroleum and Natural
Gas Regulatory Act, 2006, provides for the evaluation of bids
according to a quantitative bid evaluation criteria. - Electronics: The Preference for Domestically
Manufactured Electronic Products Policy (2013) applies to all
ministries/departments (except the Ministry of Defence) for
electronic product procurement for government purposes. - Electricity: Electricity Act, 2003 provides
for the determination of tariffs through bidding processes by
distribution licensees for the procurement of power. - Telecoms: Guided by the National Telecom
Policy (currently in the process of being re-worked to transition
from physical to digital infrastructure. See question 8.1
below). - Renewables: The Ministry of New &
Renewable Energy has released a National Policy on Biofuels and a
Strategic Plan for New and Renewable Energy Sector. In 2017, the
government issued guidelines for wind power procurement to enable
the distribution licencees to procure wind power at competitive
rates in a cost-effective manner. - Micro, small and medium-sized enterprises
(“MSMEs“): Under the Public Procurement
Policy for Micro and Small Enterprises Order 2012, a minimum of 20%
of annual value of goods/services of the Central Government and
public sector undertakings (“PSUs“) must
be procured from micro and small enterprises (with further
reservation of 4% in favour of MSMEs owned by ‘backward
classes’). - Pharmaceuticals: Pharmaceutical Purchase
Policy 2013 reserves the procurement of certain medicines from
Central Public Sector Enterprises. - DGS&D: Procurement of stores for the
Central Government is undertaken pursuant to the manual of the
DGS&D, which is the relevant authority in respect of such
procurements.
1.4 Are there other areas of national law, such as
government transparency rules, that are relevant to public
procurement?
Transparency, competition and curbing of probity issues is
further ensured through:
- Competition Act, 2002: Penalises
anti-competitive activities such as bid rigging, collusive bidding,
cartelisation, and abuse of dominance. - Right to Information Act, 2005: Promotes
transparency in government dealings by entitling Indian citizens to
expeditiously procure information from the government through a
“right to information” application. - Integrity pact under the GFR and CVC
guidelines: Addresses probity in procurement activities
including through the appointment of an external monitor to
mitigate corruption and ethical risks. - Prevention of Corruption Act, 1988 and
Prevention of Money Laundering Act, 2002: Penalise
bribery and money-laundering and provide for confiscation of
property derived from money-laundering and other illicit
activities.
1.5 How does the regime relate to supra-national regimes
including the GPA, EU rules and other international
agreements?
Although India has not acceded to the GPA, it became an Observer
State in 2010.
2 APPLICATION OF THE LAW TO ENTITIES AND CONTRACTS
2.1 Which categories/types of entities are covered by
the relevant legislation as purchasers?
Government and government agencies, or entities otherwise deemed
to be ‘state entities’ for the purposes of the Constitution
will be governed by the procurement framework. The concept of
‘state entities’ has been expanded through judicial review
to include all ministries and departments of the Central and State
Governments, corporate entities owned/controlled by central or
state governments, public authorities exercising statutory powers,
statutory authorities and non-statutory authorities exercising
public functions, or otherwise under the direct or indirect control
of the aforementioned ‘state entities’.
Further, autonomous bodies that are created or owned by, or
receive grants from, the Government, and entities whose services
are being utilised by the entities mentioned above or to whom the
procurement process has been outsourced (such as procurement
support agencies or procurement agents) will also be covered.
2.2 Which types of contracts are covered?
The regulatory framework covers all contracts offered by the
government at the central, state or local level. Examples of types
of contracts covered include PPP contracts, concession agreements,
operation and maintenance contracts, engineering procurement and
construction contracts, supply of equipment, supply of services,
transfer of technology, etc.
2.3 Are there financial thresholds for determining
individual contract coverage?
While the GFR applies to all instances of procurement of goods
required for public sector use regardless of the value of the
goods, monetary thresholds are involved in the following instances
under the GFR:
- Purchases of up to INR 250,000 can be made at the discretion of
the ministry/department by issuing purchase orders containing basic
terms and conditions. - For works contracts valued at: (a) INR 100,000 – INR
1,000,000, the letter of acceptance will result in a binding
contract (subject to certain conditions of contract being included
in the tender document); and (b) INR 1,000,000 and above, a
contract must be executed (which can be a “simple one page
contract” where preceded by an invitation to tender and
conditions of contract). - Goods can be purchased without inviting bids: (a) on the basis
of a certificate from the competent authority, where the goods are
of up to INR 25,000 in value; and (b) on the recommendation of the
relevant Local Purchase Committee if between INR 25,000 and INR
250,000 in value. - A limited tender enquiry (with no advertisement necessary) can
be pursued for goods valued less than INR 2,500,000. - The monetary ceilings for direct online purchases on the
Government e-Marketplace (“GeM“, a
portal for the purchase of common use goods and services) are as
under: -
- up to INR 50,000: through any of the available eligible
suppliers on GeM; - INR 50,000 – INR 3,000,000: eligible GeM seller having
the lowest price of amongst at least three different manufacturers;
and - over INR 3,000,000: eligible supplier having the lowest price
after mandatorily obtaining bids using the online bidding/reverse
auction tool.
- up to INR 50,000: through any of the available eligible
2.4 Are there aggregation and/or anti-avoidance
rules?
These issues are typically governed by the tender documents
which may, for instance, specify that the credentials of a bidder
may not be aggregated with those of its group companies/holding
company/JV partner, etc. for the purpose of determining compliance
of the bidder with the specified qualification criteria for the
supply of goods. The documents may also permit clubbing the
financial standing credentials of the fully owned subsidiary
bidding company with those of its holding company, with appropriate
legal documents proving such ownership. Bidders may be queried
during the tender process and requested to provide substantiating
documents to ensure probity.
2.5 Are there special rules for concession contracts
and, if so, how are such contracts defined?
Concession contracts are agreements where the right is granted
to a private sector entity to undertake actions for the provision
of a public good or service, which would, save for such grant, be
provided by a public sector entity.
There are no comprehensive central rules or regulations
governing concessions. However, states such as Tamil Nadu, Gujarat,
Himachal Pradesh, Punjab, Andhra Pradesh and Bihar have
infrastructure development laws that include matters pertaining to
work or services concessions.
Further, Model Concession Agreements
(“MCAs“) have been formulated by the
government to standardise terms on which licences are granted to
private entities for delivery of goods and services for public
benefit. MCAs have been developed across sectors (for instance for
highways, metros, ports, airports, railway stations, etc.) and set
out the contractual framework for implementation of PPP projects
under the policy and regulatory framework in question 1.1 above.
They address critical issues such as mitigation and unbundling of
risks, allocation of risks and returns, symmetry of obligations,
reduction of transaction costs, termination, etc. Various versions
of the MCA have been formulated on the basis of the different PPP
modes such as Build Operate Transfer (Toll), Build Operate Transfer
(Annuity), Design, Build, Operate and Transfer
(“DBOT“) and Operate Maintain and
Transfer (“OMT“).
2.6 Are there special rules for the conclusion of
framework agreements?
Yes, the GFR and MPG lay down principles pertaining to the
conclusion of framework agreements, typically referred to as
‘rate contracts’. Such contracts can be entered into with
one or more suppliers for the supply of specified goods/services at
specified prices and for a specified period of time. The contract
is in the nature of a standing offer from the supplier and no
quantity or minimum drawal is guaranteed under the contract. The
procurer can conclude more than one rate contract for a single item
and also has the option to renegotiate the price with the rate
contract holders.
Typically, rate contracts are entered into by DGS&D for
common user items which are frequently needed in bulk across
government departments. If a ministry/department directly procures
goods for which DGS&D has a rate contract in place, the price
paid for the goods should not exceed that stipulated in the rate
contract. The MPG further suggests that rate contracts should be
entered into by DGS&D via the GeM for specialised and
engineering items.
2.7 Are there special rules on the division of contracts
into lots?
Yes, there is an accepted principle of division of contracts
into “parallel contracts” on terms to be set out under
the tender documents. The tender documents will reserve the right
of the procurer to divide the contract quantity between suppliers.
The manner of deciding the relative share of lowest bidder (L1)
contractor and the rest of the contractors/tenderers should be
clearly defined under the tender, along with the minimum number of
suppliers sought for the contract. This is particularly
advantageous for the procurer in case of
critical/vital/safety/security nature of the item, large quantity
under procurement, urgent delivery requirements and inadequate
vendor capacity, to ensure security of supply.
Further, the MPG suggests that if it is discovered that the
quantity under the tender is such that a sole supplier is not
capable of supplying the entire quantity, and there was no prior
decision/declaration in the bidding documents to split the
quantities, then the quantity finally ordered may be distributed
among the other bidders by counter offering the L1 rate in a manner
that is fair, transparent and equitable.
However, the GFR prohibits dividing a demand for goods into
small quantities so as to make piecemeal purchases to avoid
procurement through L1 buying (i.e. lowest price), bidding or
reverse auction requirements on GeM or the necessity of obtaining
the sanction of higher authorities (which may be required based on
the estimated value of the total demand).
2.8 What obligations do purchasers owe to suppliers
established outside your jurisdiction?
While there are no obligations specific to foreign suppliers,
the GFR and the procurement policies established under its general
principles seek to ensure the transparent, fair and equitable
treatment of all suppliers – whether local or foreign –
and the promotion of competition in public procurement.
However, the following items are of relevance to foreign bidders
and suppliers:
- Certain manuals of ministries and PSUs may, under the term of
the tender documents, obligate foreign suppliers to enter into the
tender contract and supply via a local entity (as a JV, consortium
or subsidiary). - Further performance guarantees may be sought from foreign
suppliers who do not have a track record of supply in India. - Certain long-term contracts may have continuing obligations in
the form of transfer of technology and warranty support from
foreign suppliers. - For qualifying contracts under the Public Procurement
(Preference to Make in India) Order, 2017, local suppliers will be
given purchase preference if they match the winning bid of a
foreign supplier within a certain margin above the L1 price (see
question 3.4 below for more information).
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Originally published by The International Comparative Legal
Guide to: Public Procurement 2019.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
