1. Table of Contents
2. Executive Summary
The Centre for Digital Economy Policy
Research (C-DEP) supports the Indian government’s decision to create a single
guideline for public procurement as outlined in the Public Procurement Bill
2012. With a view to synchronize the Government’s procurement policies as
currently followed by the DGS&D with the PPB 2012, C-DEP’s observations are
given in the following document.
C-DEP recommends that
a) Payment terms, should be revised to a 98:2 ratio from the current
50:50 ratio,
b) The Ministry of Finance reinstates the Suspense Account, and creates
a reliable screening mechanism till such time that the Suspense Account is
reinstated,
c) The Chief Controller of Accounts (CCA) strengthens the payment
process by tracking and updating the registration of authorized signatories who
can ask payments to be released to vendors,
d) DGS&D rate contracts allow for a structured process for product
upgradation during the time period of a rate contract,
e) The DGS&D moves towards accepting digitally signed documents
that do not require ink signed backup copies,
f) OEM test reports in case of ERTL certification requirements be
accepted by DGS&D, and
g) The DGS&D creates a mechanism for seamless validity of rate
contracts.
3. Background
There is currently no single guideline for public procurement in India.
In order to strengthen the public procurement process, the Government of India
has taken a stand to streamline all public procurement. As a first step, the
government, through the Ministry of Finance, has formulated a draft Public
Procurement Bill 2012 which will govern the procurement process for all central
government and PSUs in the country.
However, while the decision to create a single guideline for procurement
comes at the right time, the exercise can be further strengthened by
streamlining it with existing procurement rules. This position paper by C-DEP is
based on a holistic, view of what is required to ensure transparency and
effectiveness in public procurement since the guidelines need to be viewed and
would work in conjunction with each other rather than each in isolation.
4. Payment terms
As a part of the initiatives undertaken by the Government of India to
implement anti-corruption measures and strengthen the public procurement
process, the Ministry of Commerce has initiated several steps including
discontinuation of the suspense account, revision of payment terms for all
public procurement through the Directorate General of Supplies and Disposals
(DGS&D), and steps to take the entire public procurement process online.
These steps have come at a time when the Indian economy is in need of
stringent anti-corruption measures. Such measures will increase the
transparency of the Indian public procurement process and in turn will boost
the nation’s credibility, as well as discourage unscrupulous vendors. However,
there is an anomaly.
One of the measures states that the Chief Controller of Accounts (CCA)
will make a payment of 50% of the total value of the bill at the time of
submission of Proof of Dispatch (POD) to CCA, and balance 50% would be released
after the end customer confirms in writing to the CCA that they are in receipt
of the goods. While this minimizes the government’s exposure to 50%, it does
not serve as a means to check intentional fraud. For all practical purposes,
all it does is maintain a control on vendors so that the after sales service
needs of the end customer is met satisfactorily for a limited period of time.
More significantly, such a measure is liable to severely restrict market
growth for sectors for whom government business accounts for a significant
portion of their revenue. This also goes against the government’s effort to woo
investments into the country in areas where domestic manufacturing has not yet
become competitive on a global level.
Keeping in mind that the IT Hardware sector has been identified by the
National Manufacturing Competitiveness Council as a thrust area that will serve
as a high growth segment to pull the overall economy to a 9% growth path, we
would request that DGS&D favourably considers that the IT sector be allowed
to claim 100% payment on delivery from CCA until such time that the IT industry
has gained critical mass in terms of domestic manufacturing.
As an additional control point to prevent fraud, we would suggest that
the CCA write to each end customer seeking their approval in writing within a specified
timeframe, mentioning that unless CCA hears from them in writing otherwise, the
payments would be released by the CCA.
5. Discontinuity of suspense account
DGS&D has issued a notification that with effect from July
2012, unless the end customer has sufficient credit balance, CCA will not make
any payments to the vendor even if an order has been executed. Vendors do not
have any visibility to the credit limits of end customers, and are not in a
position to discern. Additionally, if a customer has placed orders on multiple
vendors at the same time, there is a risk of only the first supplier getting
paid, as there is no internal system of checks and balances in DGS&D to
stop a customer from placing multiple orders simultaneously.
HP would request that the suspense account be reinstated as per
earlier norm. Alternately, DGS&D may set up a screening system so that end
users without sufficient credit balance may not place orders at all to vendors.
6. Signature registration with CCA
CCA is supposed to have with them a list of
signatories with authenticated signatures for Indentor & Consignee,
before releasing payment . We can compare this to a bank allowing cheque credit
/encashment, post signature verification. Currently CCA does not maintain the
list of authorized signatories, and the system is defunct. However, CCA plans
to restart this from September 2012. Authorized signatories change regularly,
and payment cycles should not suffer due to this.
7. Product Upgradation
Issue: Under the news terms, DGS&D
product upgradation are not allowed during the term of a Rate Contract.
Impact: As we are all aware, the Information
Technology industry is highly dynamic and products are constantly upgraded
every three to twelve months. In addition, the ecosystem is inter-dependent
which means that technology decisions are multi-lateral. Product upgradation
not being allowed during the term of a RC will lead to IT vendors stopping supply
of that particular product. In addition, customers will be deprived of choice
and new technology since upgradation is not allowed. DGS&D shares the
industry’s vision of providing customers products with the latest technology,
and the above policy would run against this stated objective.
Recommendation: We, therefore, suggest
that DGS&D instill a process of reviewing technical upgrades for IT
products on a quarterly basis and allow all IT vendors to submit
their requests for upgraded or new model amendments, if any. Technology
upgradations which are met at the same price points as agreed in the ongoing RC
should be accepted by DGS&D. At the
beginning of every quarter a week’s window could be allocated for technical
upgradation requests from IT vendors. This process will help DGS&D and
customers make provisions for new technology.
8. Acceptance of Ink signed/Digital signed documents
Issue: In the new terms, DGS&D has
reverted to an older policy where online processes are required to be
authenticated by physically signing (ink signed) and stamping copies all
documents. This older process has been introduced as online I-calls are
still not streamlined and there have been instances where online I-Calls do not
show details such as complete name, date of visit, address and so on.
Impact: This process inordinately delays
inspection, execution and all other related processes. As a process it works
against streamlining business processes and reducing product delivery time to
customers.
Recommendation: Ministry of Commerce should
advise DGS&D to accept either ink signed or digitally signed documents till
the necessary checks and balances in the software system are streamlined, as in
the long term, we understand that DGS&D has agreed in principal to move
towards acceptance of digitally signed documents.
9. Broad base Product Registration
Issue: Currently, products are registered
individually by model. For example, in the present tender for laptops there are
15 variants of AMD based note books and 12 variants for Intel based notebooks
apart from 6 variants of other form factors. This means that every laptop
vendor has to provide documentation and registration for 33 notebooks. This
increases documentation considerably and does not add value to the registration
or buying process.
Impact: The ERTL Test Report requirement is a
time-consuming and expensive process. Products from reputed suppliers
adhere to strict international guidelines and are tested for quality and
functioning under all conditions.
Recommendation: We recommend a product or
model is registered based on its highest specification which would suffice for
all the lower specifications of the same platform. In the case of ERTL reports,
OEM test reports should be accepted as against duplicating the process.
10. Integration of software, hardware and peripherals RCs
Issue: According to the new policy, DGS&D
has split RCs for different product groups such as Laptop/Desktop, Server,
Storage, Software, Printers and peripherals.
Impact: By doing so, customers will now need
to issue separate orders for a single solution requirement. This becomes
cumbersome for vendors as most of them have partnerships and collaborations at
the back-end that are instituted to ensure that a customer gets a complete
solution.
Recommendation: The need for separate RC for
Software and Hardware should be dispensed with and RCs should be led by the
hardware which includes provisions for software, networking, peripherals and so
on as may be the case.
11. Validity of Rate Contracts
Issue: Firstly, in the case of Office
Automation products and Multi-function Devices Rate Contracts are valid only
for a period of six to seven months. Secondly, there is an unusually long time
lag between new RCs and old RCs that affect customers and vendors alike.
Impact: Due to the time lag between RCs, time
and resources are wasted which do not add any value to the overall process.
Without a valid RC no purchases can be made, affecting both customers and
vendors.
Recommendation: As a standard validity of all
Rate Contracts for IT products should be made for a minimum period of one
year. Also, the validity of a Rate
Contract should automatically be extended till such time the new Rate Contract
is in place.
12.
One OEM One Vendor Norm
Issue: DGS&D new policy states that a
vendor can quote products from only a single OEM and not multiple OEMs as was
the case earlier.
Impact: The One OEM – One Vendor policy has
the tendency to create a monopolistic situation and reduces competition between
vendors and OEMs. In a multiple bid environment, customers have more than one
option to select the brand or technology that is opted for. For example, if a
customer wants to buy a particular brand due to its technology offering,
however, the vendor has not been empanelled for application software or for
Operating Systems or does not have sufficient support infrastructure, then the
customer may not be able to procure the technology best suited for his
organization.
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