Get public procurement policy right: L1 focus has to go; govt must instead give primacy to potential delivery of higher quality

The Centre has done well to ease the norms for purchases of Covid essentials. The Economic Times reports the Centre has allowed the procurement of the same Covid-critical item at different rates, while opening up procurement below Rs 200 crore for global tendering; last year, this had been debarred under the Atmanirbhar Bharat initiative, with the objective of helping domestic MSMEs. Special relaxations have also been allowed to the department of pharmaceuticals and the Defence Research and Development Organisation (DRDO).

Given there is a desperate need to ramp up supplies of crucial medical-care elements including oxygen, and key Covid-19-care drugs, the relaxations of the procurement norms are certainly welcome. That said, India needs a more mature procurement policy, and not just during crises. It can’t, for instance, fixate on the lowest bid for procurement of a service or good. That may still match the government’s specified criteria but the low cost could become a barrier against quick execution or deny the taxpayer a higher quality of services or goods.

One example, explained in detail by i3g Advisory Network’s Srikant Sastri in an article in The Times of India, best illustrates this problem. Last year, when the pandemic hit the country, the government quickly cobbled together tenders for, among other things, oxygen generators of 15 different capacities and set an unrealistic execution deadline. Top players participated, but talked of more “realistic delivery commitments”.

Predictably, they didn’t win the bid; the contract went to two other players that had little demonstrated capability in the matter, but offered the lowest bid value and committed to meeting the deadline. Needless to add, little had been delivered even after the deadline had elapsed more than twice over. Critical healthcare procurement, therefore, was dealt a body-blow by myopic procurement norms. And, the government still ended up spending a lot of money! Indeed, India’s public procurement forms a very large chunk of its GDP—against the US’s 9% and the OECD average of 12%, India’s public procurement constitutes nearly a quarter of its GDP.

India’s infamous L1-itis affliction has hobbled its infrastructure in many instances; indeed, the experiences of BSNL and ONGC that have lost out because of the this constraint, as pointed out by this newspaper several times, show how desperately the procurement policy needs to shift away from a focus on the lowest-cost-bidder. How limiting India’s procurement policy has been is evident from the fact that, some years ago, the government was forced to abandon a tender when the US-based MNC General Electric emerged as the single bidder; this was despite GE’s bid being lower than the internal estimate of what it would cost the relevant government concern to execute the work itself.

Moving away from this will require a change in mindset. While the ONGC board has accepted a proposal from a consulting group on rejigging its tendering process to give more weight to the technical criteria before looking at the costs, true change will come about only when, among other things, the government works to dispel the CAG/CVC cloud over discretionary procurement—while retaining enough safeguards against graft—and frees PSUs from the “instrumentalities of the state” tether. This is especially needed given the pace of technological leaps, and public procurement of goods and services must focus on getting the best; costs and other factors will need to come second, after quality.