INTRODUCTION TO PUBLIC PROCUREMENT

By
Amitabha Datta
Professor of Practice
Arun Jaitley National Institute of Financial Management
Former Additional Member, Railway Board

20/06/2024 AMITABH DATTA 1

 Public Procurement: Definition
Public Procurement means acquisition of
Goods, or
Services, or
Works, or
A combination of any two or all three above
 By purchase, lease, license, or otherwise
 Including award of Public Private Partnership Projects
By a procuring entity, whether directly or through an agency with which a contract for
procurement services is entered into.
[Public Procurement Bill 2012]

20/06/2024 AMITABH DATTA 2

 Public Procurement in India
In India, procurements done by
Central Government Ministries/Departments, autonomous
bodies, statutory authorities public sector enterprises etc.
State Governments
fall in the category of “Public Procurement”

20/06/2024 3
 Public Procurement: Basic Architecture

Public
Procurement

20/06/2024 NIFMMDPONLINELECT1 4
 Importance of Public Procurement
Public Procurement
 Is an essential delivery mechanism of any department
Occupies an extra large fiscal space: Huge potential of cost
cutting/expenditure reduction by an organization using procurement as a
strategic tool
Involves important projects in the area of infrastructure, education, health
etc. – having major impacts on the economy and development of a country
Is a strategic tool for implementation of major government policies and
programs for economic growth, job creation etc.

20/06/2024 AMITABH DATTA 5

 Volume of Public Procurement
No definitive estimates of the total volume of public procurement in India are
available at any one place
An OECD quick estimate had put this figure as 30 per cent of the GDP
A rough estimate of WTO had put this figure as 20 per cent of GDP
The Competition Commission of India had estimated in a paper that the annual
public sector procurement in India would be around Rs 8 Lakh Crore while a
rough estimate of direct Government procurement is between Rs 2.5 to RS 3.5
Lakh crore. Total: Rs 10 Lakh Crore to Rs 12 Lakh Crore
Old figures – current figures shall be higher
Thus public procurement occupies a very large fiscal space

20/06/2024 AMITABH DATTA 6

 Importance of Public Procurement
Procurement is an activity essential for
Functional Requirements of an organization
Delivery of Public Services
Development Project Deliveries
Defense and Security, and
Disaster Management
In short public procurement is an essential part of delivery mechanism of any
organization

20/06/2024 AMITABH DATTA 7

 Public Procurement and Public Servant
One of the definitions of ‘Public Servant’ given in Section 2 (c) of
the Prevention of Corruption Act, 1988 is: -
Any person in the service or pay of the Government or remunerated
by the Government by fees or commission for the performance of
any public duty

20/06/2024 AMITABH DATTA 8

 Public Procurement and Public Servant
All Public Servants (including procurement entities) are
required to meet
The standards of public life, and
The standards of financial propriety

20/06/2024 AMITABH DATTA 9

 Standards of Public Life
The Supreme Court of India, in its judgment in the Vineet Narain & Others vs. Union of India
& Another (PIL) case had set the following standards of public life
Selflessness
Integrity
 Objectivity
Accountability
 Openness
 Honesty, and
 Leadership
Holders of public office can exercise their powers in public interest alone

20/06/2024 AMITABH DATTA 10

 Standards of Financial Propriety
Every officer is expected to exercise the same vigilance in respect of
expenditure incurred from public money as a person of ordinary
prudence would exercise in respect of expenditure of his own money
– Very much relevant to public procurement – The principle of Caveat
Emptor (Latin – Let the Buyer Beware)
The expenditure should not be prima facie more than the occasion
demands – Necessary to ensure achieving value for money in public
procurement – No over procurement in respect of Quantity and
Quality
[Rule 21 of the GFR 2017]

20/06/2024 AMITABH DATTA 11

 Need of a Framework of Public
Procurement
For the following reasons a framework of public procurement is necessary
 Involves expenditure of public money and to be done in public interest alone
- Procurement decisions must be compliant to laid down standards i.e. rules
and procedures
Procurement powers are financial in nature and procurement officers are accountable i.e.
personally answerable to the outcome of their decision – Framework necessary not only for
right decision making but also for defending such decisions in future, if necessary
Public Procurement highly susceptible to corruption – Need of an authority to combat that
Need of an external oversight of compliance of rules and procedures
Need of an authority to ensure competition and regulate anti – competitive behavior in
public procurement

20/06/2024 AMITABH DATTA 12

 Framework of Public Procurement
Government’s
Policy
Legal
Framework Framework

Procedural Regulatory
Framework Framework
20/06/2024 NIFMMDPLECT1REV2017 AMITABH DATTA 13
 Public Procurement – Policy Framework
There is no structured ‘Policy Statement’ issued by the Government in respect of
Public Procurement
However, the General Financial Rules stipulate the basic policy of public
procurement by the Central Government Ministries/Departments which mandates
the following essential principles
Competition
 Economy
 Efficiency
Equitability
 Transparency

20/06/2024 14
 Public Procurement in India
Policy Framework
These five principles lead to seven ‘Rs’ (Rights) of Public Procurement
Right Quantity
Right Quality
Right Price
Right Time
Right Source
Right Procedure
Right Terms and Conditions

20/06/2024 15
 Public Procurement – Legal Framework

CONSTITUTION OF INDIA

20/06/2024 AMITABH DATTA 16

 Legal Framework: Constitution of India
Article 12 – “The State” includes the Government and Parliament of India and the
Government and the Legislature of each of the States and all local or other authorities
within the territory of India or under the control of the Government of India
Article 14 – Equality before law – The State shall not deny any person equality before the
law or the equal protection of the laws within the territory of India
Article 14 and 298 & 299 – States’ contracts with private parties also governed by Article
14 – It has to act justly, fairly and reasonably even in the contractual field. Shrilekha
Vidyarthi v. State of UP, (1991) 1 SCC 212
Article 52 – There shall be a President of India
Article 53 (1) – The executive power of the Union shall be vested in the President and shall
be exercised by him either directly or through officers subordinate to him in accordance
with this Constitution

20/06/2024 AMITABH DATTA 17

 Legal Framework: Constitution of India
Article 77 (1) – All executive actions of the Government of India
shall be expressed to be taken in the name of the President
Article 77 (3) – The President shall make rules for the more
convenient transaction of the business of the Government of India,
and for allocation among Ministries of the said business
Government of India (Allocation of Business) Rules, 1961 and
Government of India (Transaction of Business) Rules), 1961

20/06/2024 AMITABH DATTA 18

 Legal Framework: Constitution of India
Government of India (Allocation of Business Rules), 1961
Second Schedule – The executive power of the Government in
respect of the following is vested in the Department of Expenditure
(DoE), Ministry of Finance
Financial Rules and Regulations
Delegation of Financial Powers

20/06/2024 AMITABH DATTA 19

 Legal Framework: Constitution of India
Article 299 (1) – All contracts made in the exercise of the executive power
of the Union or of a State shall be expressed to be made by the President,
or by the Governor
Takeaways
Vendors have the protection of Article 14 of the Constitution, when they
participate in any public procurement process
Department of Expenditure (DoE) of the Ministry of Finance is the nodal
department for public procurement
Signing a contract “For and on behalf of the President of India” is a
requirement of the Costitution

20/06/2024 AMITABH DATTA 20

 Public Procurement in India
Legal Framework
The Parliament is yet to enact any Public Procurement Law for procurements by
the Central Government Ministries/Departments etc. although a bill was moved in
May 2012, for the first time
Ministry of Finance has made rules on public procurement of Goods, Works and
Services including Consultancy Services, in the General Financial Rules (GFR)
In the absence of any Procurement Law, GFR provide for the necessary Rules
Framework in lieu of a Legal Framework for procurements by Central Government
Ministries/Departments
In addition, relevant sections of the Indian Contract Act, 1872 and the Sale of
Goods Act shall govern, as warranted, tender processing, framing of contract
conditions, contract management etc.

20/06/2024 21
 Applicability of GFR
The very first version of GFR came in 1947 when India became
independent. That was followed by the editions of 1963, 2005 and the
latest is of the year 2017
Rule No. 1 of GFR 2017
These rules shall be applicable to all Central Government
Ministries/Departments, attached and subordinate bodies
Provisions contained in GFRs are deemed to be applicable to
Autonomous Bodies except to the extent the bye – laws of an
Autonomous Body provides for separate Financial Rules which have been
approved by the Government

20/06/2024 AMITABH DATTA 22

 Public Procurement in India
Procedural Framework - Manuals
Ministry of Finance has issued three Manuals for Procurement of Goods,
Works and Services including Consultancy Services
These Manuals were issued on the basis of the General Financial Rules and
are to be taken as generic guidelines.
Subject to observance of these generic guidelines procurements by a
Ministry/Department will be regulated by detailed rules and orders of the
Ministry/Department
Ministries/Departments should supplement these generic Manuals by issuing
their own detailed Manuals (including customized formats), Standard Bidding
Documents, Schedule of Procurement Powers etc.

20/06/2024 23
 Public Procurement in India
Procedural Framework - Manuals
Major Goods procuring Ministries/Departments like the Ministry of Defense, Ministry of
Railways etc. have their own detailed guidelines tailored to their unique requirements e.g.
Manuals or Procedure Orders.
Many other Ministries/Departments as well as CPSEs also have their own Procurement
Manuals.
 For these procurement entities, the MoF Manuals serve as a generic reference
Disclaimer – In case of any conflict between the provisions stipulated in the Manual and in
the original source such as GFR or the prevailing laws, the provisions contained in the extant
law and the original instructions shall prevail
[Manual of Procedure on Procurement of Goods issued by the MoF]
GFR permit different procuring Ministries/Departments to customize their procurement
procedures, bidding conditions etc. remaining with the basic tenets of GFR

20/06/2024 AMITABH DATTA 24

 Public Procurement
Regulatory Framework
Necessary to
Prevent Corruption in Public Procurement
Ensure compliance of government rules and procedures of public
procurement
Promote competition in public procurement and prevent anti
competitive activities by the bidders/vendors

20/06/2024 25
 Public Procurement in India
Regulatory Framework
Central Vigilance Commission
Statutory Authority. Apex Vigilance institution free from any executive
authority
Empowered by the CVC Act 2003
Exercises general superintendence and control over vigilance administration
of Ministries/Departments
Inquires/investigates alleged offences under the Prevention of Corruption Act
by a public servant
Exercise superintendence over investigations by the Central Bureau of
Investigation under the PC Act

20/06/2024 26
 Public Procurement in India
Regulatory Framework
Comptroller and Auditor General (CAG) of India
Authority established under Article 148 of the Constitution of India
Audits all receipts and expenditures of the Central Government and State
Governments including those of local bodies and authorities substantially
financed by the Government
Compliance Audit, Performance Audit

20/06/2024 27
 Public Procurement
Regulatory Framework - Competition
Anti Competitive Practices by the vendors/bidders involve;
Cartelization
Bid Rigging/Collusive Bidding
Abuse of market dominance
Such anti-competitive practices cause inflated prices. poor quality of goods
and services and lack of choice for the procuring entities – all these lead to the
government loosing value for money in procurements

20/06/2024 28
 Public Procurement in India
Regulatory Framework: Competition
Competition Commission of India (CCI) is a regulatory authority
empowered by the Competition Act, 2002
The CCI acts as an expert body and functions as a market
regulator for preventing and regulating anti-competitive practices
in the country
The Commission also has advisory and advocacy functions in its
role as a regulator

20/06/2024 29
 Public Procurement in India
Institutional Framework
Procurement Policy Division under the Ministry of Finance
Functions
Framing Procurement Policies
Procurement Advisory Role
Procurement ‘Think Tank’
Procurement Capacity Development Initiaves

20/06/2024 30
 Epilogue

Leadership and learning are indispensible to each other

John F. Kennedy

20/06/2024 AMITABH DATTA MDP PUB PROC NIFM 31