E-procurement In Psu's

A REPORT ON

“E-PROCREMENT IN PSUs”

By RINKY MALHOTRA PGDM-SEM-2 ND At NTPC LIMITED 1

A REPORT

ON

“E-PROCUREMENT IN PSUs”

By RINKY MALHOTRA PGDM-SEM-2ND At

NTPC LIMITED

Date of Submission:

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AUTHORIZATION

This summer project report titled “E-PROCUREMENT IN PSUs” is submitted in partial fulfillment of the requirement of PGDM program of GLOBAL INSTITUTE OF MANAGEMENT AND TECHNOLOGY. The Summer Internship Program is an attempt to bridge the gap in student’s perception between the academic institution and the corporate world. The course curriculum is so designed that the students get enough practical knowledge of business world which helps them to explore their skills in the corporate world in future. It will also help to develop skills to analyze and interpret problems, through application of concepts and techniques of management.

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ACKNOWLEDGEMENT

These eight weeks at National Thermal Power Corporation (NTPC) have been a great learning experience. It has been one of the most enriching experiences for me to work along with the employees of one of the best managed organizations, a company rightly considered as one of the Navratna’s in the public sector of the country. I consider it a great privilege to express through the pages of this report, a few words of gratitude and respect to those who guided and inspired me in completion of this project. I am deeply obliged to Mr. A.A.Sheikh(AGM Fin) for giving me the opportunity to undertake the project in his esteemed organization. I would also like to thank my Company Guide, Mr.P.K.Goel(DGM Finance), who encouraged and gave me ample support to do this project. I thank him for taking out his precious time, showing keen interest and giving valuable guidance at every stage of the project. Later on, I would like to confer the flower of acknowledgement to my Faculty Guide, Ms.Manika Mathur for her kind support and guidance to complete the project. Rest all the staff of different departments of NTPC, who helped me, are not only a matter of 4

acknowledgement, but are also authorized to share my success.

TABLE OF CONTENTS

Authorization…………………………………………………………………. 3 Acknowledgement…………………………………………………………...... 4 Executive Summary…………………………………………………………... 6 List of Illustrations………………………………………………………….… 7 1. Introduction- Purpose and Scope………………………………………….8 2. Research Methodology……………………………………………………11 3. About the company………………………………………………………..12 4. Main Text………………………………………………………………….24 4.1 Types of Tenders………………………………………………………….25 4.2 Process of Procurement…………………………………………………..28 4.3 Contents of Bidding Documents…………………………………………37 4.4 E-Procurement……………………………………………………………47

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5. Limitations of the study…………………………………………………...54 6. Suggestions and Recommendations……………………………………...55 7. Annexture-1,2,3……………………………………………………………56

8. Case Study on E-Procurement in Government of Andhra Pradesh, India 9. Learning’s from the Project……………………………………………...73 10. Conclusion…………………………………………………………………74 11. References…………………………………………………………………75

EXECUTIVE SUMMARY

The project report entitled as “E-procurement in PSUs” is aimed at optimizing the process of procurement followed in most of the public sector units, with the main emphasis on the bidding process followed in NTPC Limited, so as to make available the needed equipments, material and services in the right quality and quantity, at the right time and at the right place. Materials and equipments constitute a very significant proportion of total cost of power produced by NTPC. It is estimated that about 40% to 70 % of total production cost is related to material and equipments only. So, control over such costs is very essential for the organization. This is done by breaking down the total project work for a power plant into various smaller well defined packages. Then, NTPC invites sealed bids from various eligible bidders for these packages. These sealed bids are opened at the time indicated in the invitation to tender, in the presence of representatives of the bidders, if they present themselves and a representative of Finance. The bidder, which satisfies all the qualifying requirements, and offers 6

the lowest cost, is awarded the contract. A tender Committee is formed to decide on the award of contract valuing 2 lacs and above. The members of the Tender Committee at appropriate level shall consist of representatives from Indenting, procurement/Contracts and Finance department. The company utilizes its External Commercial Borrowings(ECB) in the form of loans and advances or its own resources for procuring different plant equipment packages from these bidders.

LIST OF ILLUSTRATIONS

1.

NTPC’s Installed Capacity and Generation……………………………. 12

2.

NTPC vs. Rest of India…………………………………...…………….... 12

3. NTPC Power Plants……………………………………………………… 13 4.

List of Joint Ventures……………………………………………………. 18

5.

Future Capacity Additions…………………………………………….. 21

6.

Types of Tenders……………………………………………………….. 23

7.

Process of Procurement………………………………………………… 26

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8.

Process of E-Procurement……………………………………………… 46

1. INTRODUCTION-PURPOSE AND SCOPE The project is aimed to study and understand the process of procurement used for procuring different plant equipment packages, from various bidders. The objective is to optimize the process of procurement so as to make available, the needed equipment, material and services in the right quality and quantity, at the right time and at the right place after giving fair and equal chance to tenderers, so as to obtain minimum possible price for every procurement/works. Procurement at NTPC is initiated on the basis of approved indents/requisitions and indicating budget and project estimate provisions. The contract services/materials management services receive the requisition/indent for the procurement of materials/equipment/services, duly approved by the competent authority and then plan and organize the procurement action. NTPC invites sealed bids from various eligible bidders for supply and installation of various packages needed for its various power plants. These sealed bids are opened at the time indicated in the invitation to tender, in presence of representatives of the tenderers, if they present themselves and a 8

representative of Finance. The bidder, which satisfies all the qualifying requirements, and offers the lowest cost, is awarded the contract. NTPC Limited intends to finance the package through External Commercial Borrowings (ECB), internal and other sources. The manual procedure followed for the procurement of large value capital goods is very costly and time consuming. It takes about 6-12 months for the final approval and award of contract, after the detailed evaluation of the bid. The time and money lost in filling the tender and submission of the bids can be saved to a great extent, if manual procedure is replaced with electronic procedure. Therefore, this report attempts to optimize the procurement process by adopting E-PROCREMENT MODEL. E-Procurement is the business to business (B2B) purchasing of goods and services through the Internet. E-Procurement can be implemented through either a manual process or using automated software such as Enterprise Resource Planning (ERP) tools. Without a regular and reliable supply of raw materials and needed equipments the manufacturing process will come grinding to a halt, leading inevitably to missed delivery dates and a backlog of orders. It is vital, then, to ensure that the process of procurement is as efficient and reliable as possible. E-procurement can be an invaluable tool for enterprises experiencing difficulties in their supply chain. If purchase orders are not being processed in a timely fashion and delivery dates are not being met through manual purchasing methods, e-Procurement can be extremely useful in streamlining the 9

procurement process. In a Nutshell, E-procurement offers two main advantages. The first is the further automation of business processes related to the production of goods and services. By automating procurement orders an enterprise can ensure that orders are placed in time to align with the recommended

production

schedules

of

ERP

applications.

Furthermore, e-procurement can also be a valuable tool in sourcing new suppliers of goods and services, driving down materials expenditure by promoting competitive bidding. E-procurement is very important to achieve egovernance and for applicability of uniform procurement process to all units. It has the ability to reduce procurement cost by reduction in lead time, reduction in transaction cost and cycle times etc. E-procurement also helps in building collaborative relationship with suppliers. It enables greater transparency; implements best practices, and increases the vendor base. It also reduces the possibility of cartel formation and generates reasonable competition. It helps to achieve savings in administrative and process cost. E-procurement enhances the security and it is also a step towards ERP systems for the organization.

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2. RESEARCH METHODOLOGY

The methodology adopted for the present study was discussion with company guide, experts and doing daily practical work of the organization. The existing procedure followed by NTPC Limited for the procurement of needed equipments for setting up the power plants was thoroughly studied. The main focus was to gain knowledge and experience during the training period that will help understand the whole E-process of procurement management and in making improvements in the existing system. 

Data Collection-sources and methods

Primary data: Primary data has been collected by the following methods:  Personal Interaction with Company Guide.  Discussion with experts. 

Group Discussion.

Secondary data: Secondary data has been collected by the following methods: 

Tender Evaluation reports/Previous Bids



Data bank maintained by Cost Engineering Department. 11

3. ABOUT THE COMPANY

N

TPC Limited (Formerly National Thermal Power Corporation) is the largest power generation company in India. Forbes Global 2000 for 2008 ranked it 411th in the world. It is an Indian public

sector company listed on the Bombay Stock Exchange, although at present the Government of India holds 89.5% of its equity. It was founded on November 7, 1975.

VISION "A world class integrated power major, powering India’s growth, with increasing global presence." MISSION “Develop and provide reliable power, related products and services at competitive prices, integrating multiple energy sources with innovative and ecofriendly technologies and contribute to society.”

CORE VALUES:BCOMIT

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♦

Business Ethics

♦

Customer Focus

♦

Organizational & Professional Pride

♦

Mutual Respect & Trust

♦

Innovation & Speed

♦

Total Quality for Excellence

NTPC's core business is engineering, construction and operation of power generating plants and providing consultancy to power utilities in India and abroad. Apart from power generation, which is the mainstay of the company, NTPC has already ventured into consultancy, power trading, ash utilization and coal mining. The total installed capacity of the company is 30,144 MW (including JV’s), with 15 coal based and 7 gas based stations, located across the country. Although the company has 19.1% of the total national capacity, it contributes 28.5% of total power generation due to its focus on high efficiency. The gross revenue of the company was Rs.400.113 billion, for the year 2007-08 and net profit was Rs.74.148 billion.

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Fig-1: NTPC’s Installed capacity & Generation

Fig-2: NTPC Vs Rest of India

From the above diagram, it can be observed that the NTPC has only 18.79% of electricity generating capacity but it is supplying 28.60% of total electricity being generated in the country. That means the company is utilizing its capacity in a very efficient way.

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Fig-3: NTPC POWER PLANTS

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DIVERSIFIED GROWTH NTPC’s quest for diversification started about a decade back with its foray into Hydro Power. It has, since then, been moving towards becoming a highly diversified company through backward, forward and lateral integration. The company is well on its way to becoming ‘an Integrated Power Major’, having entered Hydro Power, Coal Mining, Power Trading, Equipment Manufacturing and Power Distribution. NTPC has made long strides in developing its Ash Utilization business. In its pursuit of diversification, NTPC has also developed strategic alliances and joint ventures with leading national and international companies. 

Hydro Power: In order to give impetus to hydro power growth in the country and to have a balanced portfolio of power generation, NTPC entered hydro power business with the 800 MW Koldam hydro project in Himachal Pradesh. Two more projects have also been taken up in Uttarakhand. A wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects of capacities up to 250 MW.



Coal Mining: In a major backward integration move to create fuel security, NTPC has ventured into coal mining business with an aim to meet about 20% of its coal requirement from its captive mines by 2017. The Government of India has so far allotted 7 coal blocks to NTPC, including 2 16

blocks to be developed through joint venture route. Coal Production is likely to start in 2009-10. 

Power Trading: “NTPC Vidyut Vyapar Nigam Ltd.” (NVVN), a wholly owned subsidiary was created for trading power leading to optimal utilization of NTPC’s assets. It is the second largest power trading company in the country. In order to facilitate power trading in the country, ‘National Power Exchange Ltd.’, a JV between NTPC, NHPC, PFC and TCS has been formed for operating a Power Exchange.



Ash Business: NTPC has focused on the utilization of ash generated by its power stations to convert the challenge of ash disposal into an opportunity. Ash is being used as a raw material input for cement companies and brick manufacturers. NVVN is engaged in the business of Fly Ash export and sale to domestic customers. Joint ventures with cement companies are being planned to set up cement grinding units in the vicinity of NTPC stations.



Power Distribution: ‘NTPC Electric Supply Company Ltd.’ (NESCL), a wholly owned subsidiary of NTPC, was set up for distribution of power. NESCL is actively engaged in ‘Rajiv Gandhi Gramin Vidyutikaran Yojana’ programme for rural electrification and also working as 'Advisor cum Consultant' for Ministry of Power for implementation of Accelerated Power Development and Reforms Programme (APDRP) launched by Government of India.

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

Equipment Manufacturing: Enormous growth in power sector necessitates augmentation of power equipment manufacturing capacity. NTPC has formed JVs with BHEL and Bharat Forge Ltd. for power plant equipment manufacturing. NTPC has also acquired stake in Transformers and Electricals Kerala Ltd. (TELK) for manufacturing and repair of transformers.

SUBSIDIARIES 

NTPC Electric Supply Company Ltd. (NESCL): The company was formed on August 21, 2002. It is a wholly owned subsidiary company of NTPC with the objective of making a foray into the business of distribution and supply of electrical energy, as a sequel to reforms initiated in the power sector.



NTPC Vidyut Vyapar Nigam Ltd. (NVVN): The company was formed on November 1, 2002, as a wholly owned subsidiary company of NTPC. The company’s objective is to undertake sale and purchase of electric power, to effectively utilize installed capacity and thus enable reduction in the cost of power.



NTPC Hydro Ltd. (NHL): The company was formed on December 12, 2002, as a wholly owned subsidiary company of NTPC with an objective to develop small and medium hydroelectric power projects of up to 250 MW.



Pipavav Power Development Co. Ltd. (PPDCL): A memorandum of understanding was signed between NTPC, Gujarat Power Corporation Limited (GPCL) and Gujarat Electricity Board (GEB) in 2004 for 18

development of a 1000 MW thermal power project at Pipavav in Gujarat by forming a new joint venture company between NTPC and GPCL with 50:50 equity participation. Pursuant to the decision of Gujarat Government, NTPC Ltd. has dissociated itself from this company. PPDCL is under winding up. 

Kanti Bijlee Utpadan Nigam Limited, (formerly known as Vaishali Power Generating Company Limited): To take over Muzaffarpur Thermal Power Station (2*110MW), a subsidiary company named ‘Vaishali Power Generating Company Limited (VPGCL)’ was incorporated on September 6, 2006 with NTPC contributing 51% of equity and balance equity was contributed by Bihar State Electricity Board. This company was formed to renovate the existing unit and run the plant. The second unit has been successfully re-synchronized on October 17, 2007 after 4 years of being idle. The company was rechristened as ‘Kanti Bijlee Utpadan Nigam Limited’ on April 10, 2008.



Bharatiya Rail Bijlee Company Limited (BRBCL): A subsidiary of NTPC under the name of ‘Bharatiya Rail Bijlee Company Limited’ was incorporated on November 22, 2007 with 74:26 equity contribution from NTPC and Ministry of Railways, Govt. of India respectively for setting up of four units of 250 MW each of coal based power plant at Nabinagar, Bihar. Investment approval of the project was accorded in January, 2008.

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JOINT VENTURES

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08 NTPC 16.67% NHPC 16.67% PFC 16.66% TCS 50%

To opera te a Power Excha nge at Natio nal level.

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Fig-5: Future Capacity Additions

4. MAIN TEXT

P

rocurement is the acquisition of goods and services for the direct benefit or use of the governments, corporations or individuals generally via, but not limited to, a contract. A key question in

procurement is what to buy, given a limited budget. Procurement involves a bidding process to purchase a given product or service. The project is aimed to , study and understand the process of tendering used for procuring different plant equipment packages, from various bidders. Procurement at NTPC is initiated on the basis of approved indents/requisitions indicating budget and project estimate provisions. The contract services/materials management services receive the requisition/indent for the procurement of materials/equipment/services duly approved by the competent authority and then plan and organize the procurement action. Normally an open tendering system for procurement is adopted during construction stage of a project. However, depending on the

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circumstances and the requirements, limited tendering or single tendering system is also adopted in specific cases. Following are three types of tenders:

4.1 Types of tenders Based on the materials classification and Delegation of Powers (DOP) handbook of NTPC, following three types of tendering is adopted in NTPC:

TYPES OF TENDERS

OPEN

LIMITED

SINGLE

TENDER

TENDER

TENDER

Fig-6: Types of tenders (a) Open

tender:

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Procurements of value Rs 15 lakh and above must be done through open tendering, as it involves a lot of cost and time. Open tender is accessible to all known reliable and proven sources of particular equipment/ material. For the above purpose, advertisement is given in two or more newspapers of all India repute in addition to one or more local newspapers, where the work is to be executed.

However, in case of Empanelment, a pre-qualification

process of invitation for bids will take place, only once in every three years, by advertising in newspapers as stated above. Empanelment is done in case of award of contract for Environmental Impact Assessment (EIA), FloraFauna study etc. The criteria for pre-qualification will inter-alia consist of past performance, financial soundness, technical competence, organizational capability etc., but for the items valued less than 15 lakh, the prequalification can be done on the basis of data available in trade journals, manufacturer’s directory or approved vendors list of state government and central government. For new ventures, methodology of Expression of Interest (EOI) is adopted and by means of advertisement, new bidders are invited to provide their credentials and based on it, short listing of appropriate bidders is done.

(b) Limited tender: Limited tender is a tender, where instead of sending bid enquiry to all the possible vendors through newspapers, a limited number of vendors are 24

intimated through post or fax. But, a limited tender may be invited only for the procurement worth less than Rs. 15 Lacs. In case of a limited tender, minimum of four bidders are invited to quote the prices for the required equipment/materials/services and these four bidders must be from the approved list of vendors mentioned in the open tender. However, a limited tender is a special case and cannot be issued without proper explanation and requirement. In case of urgency& exceptional cases, items worth more than Rs.15 Lacs may also be procured though a Limited Tender Enquiry (LTE), with authorization of competent authority and the reason must be recorded in the indent documents/note sheet. Further, as per the circular No. 265/2007 the selection of vendors are to be done through a screening committee before approval by the competent authority.

(c) Single

tender:

Where procurement is made by contacting only a single source on grounds that the item to be procured is of a proprietary nature or on account of standardization or on grounds of urgency of requirement, it will be treated as a single tender. In case of proprietary items, a certificate to that effect has to be issued by the indenter at appropriate laid down levels in each case. Orders on basis of single tender will be issued with the approval of General Manger or any competent authority to which powers are delegated. However, a Single Tender

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Enquiry (STE) is to be done only on exceptional cases and is not encouraged by NTPC.

4.2: PROCESS OF PROCUREMENT

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CONTRACT PACKAGING

PREPARING A COST ESTIMATE NOTICE INVITING TENDER

BID OPENING

BID EVALUATION

APPROVAL & AWARD OF CONTRACT

Fig-7: Process of Procurement 1) CONTRACT PACKAGING Contract packaging is the first step of procurement for a project. The total project work is broken into smaller well-defined packages. This is done with the view to optimize the number of contracts to be handled for the better planning, 27

co-ordination and implementation of the whole project and at the same time to execute the project at an optimum cost to the organization. The development of contract package list for a project is done jointly by Engineering, Contracts, and Corporate Planning and Finance functions of the organization. The contract package, being extremely vital for a successful project implementation, is approved by the highest corporate level authority. A feasibility report is also prepared for a project, which contains all the details of the various equipment systems and services required. 2) PREPARING A COST ESTIMATE

Cost estimation is the most important financial activity in the process of budgeting and procurement. Further, Cost Estimate is the basis of Award and correctness & accuracy of the estimate is of utmost priority and in turn, ensures procurement at lowest possible prices. Whenever NTPC procures some material, it also specifies how it intends to finance the package through External Commercial Borrowings (ECB), internal and other sources. The procurement of the first kind i.e. ECB requires financial clearance from the Finance (Concurrence) department. For this purpose, cost estimation is done before forwarding the indent document to the finance department. The methods of cost estimation, which are used by NTPC, are: (a) Historical

cost method:

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In this method, the Cost Engineering department at NTPC utilizes the latest cost incurred for similar kind of project. For example, if the cost estimate has to be prepared for new thermal power plant, the latest executed thermal power plant rates will be used for estimation. Hence, the rates so obtained are very near to the actual rates that might be prevalent in the market at that point of time. But, to smoothen the effect of inflation and various other financial components in the prices at the time of the execution of that project, an escalation factor is used. All the prices of the previous projects are multiplied by this factor and a very close estimation of market rare is thus obtained. (b)Market rate method: Market rate method is used for the procurement of equipments that are not in very large numbers and value. In this method, once an indent is prepared, some of the vendors registered at NTPC or listed in trade journals are sent a request for quoting the prices of particular equipment. This enquiry is not a tender and the rates provided by the vendors are not a part of the bid. After the information is received, the rates quoted by various vendors are compared and the lowest quoted price is taken as base rate for calculations. However, if the difference in the price quoted by two vendors is reasonably high, an average of the two may be taken as the base. However, 10% discount is considered in the budgetary offers.

3) NOTICE INVITING TENDER 29

The next step is to invite various bidders to bid for the required package. The Notice inviting tender (NIT) is published in various leading national newspapers as per guidelines and procedures. Copies of NIT are also sent to the bidders who have evinced interest in supplying similar equipments or services in the past. In case of procurements funded by external funding agencies following international competitive bidding procedures, the NIT is also published in the Indian trade journal and a copy of NIT is sent to each of the embassies/ high commissions of members countries of the funding agency. In the NIT, time, date and venue of bid opening, amount of bid security etc. is mentioned and only a specific part of Qualifying Requirements (QR) is published. However, the bidding documents stipulate the complete and detailed QR specific requirements to a particular contract package. Such qualification criteria include the financial status of a bidder (manufacturer or project executing agency), technical requirements to be fulfilled etc. NTPC invites sealed bids in two stages i.e. Stage- I: Techno Commercial Bid and Stage- II: Price Bid or both simultaneously. For Hydel and wind power projects, bids are invited in separate stages, whereas in case of thermal power projects, bids are invited simultaneously. All bids must be accompanied by Bid Security of a particular amount in a separate sealed envelope. Any bid not accompanied by an acceptable bid security in a separate sealed envelope shall be rejected by NTPC as being non-responsive and returned to the bidders without being opened.

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4) BID OPENING

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Bid opening is the next step in procurement process. Tenders are opened on the due date and time mentioned in the NIT. If the date mentioned is declared holiday, the next working day will be considered as the opening date, but the time will remain the same. These sealed bids are opened by a committee nominated by the tender committee members from the respective departments at the time indicated in the invitation to tender, in presence of representatives of the tenderers, who wish to attend and a representative of Finance. When bids are opened, the names of all present tenderers would be read out for the benefit of the bidders present and where feasible, the various price schedules from the Grand Summary Price Schedule (Schedule 5) are read out. Any omission or irregularity such as absence of signature of a tenderer, absence of earnest money deposit, references etc. may be pointed out on the document itself and is signed by the nominated bid opening committee.

5) BID EVALUATION

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The process of evaluation of bids begins with an examination of the bids in order to determine: 1. Acceptance of all Qualifying Requirements. 2. Acceptability of bid security furnished by the bidder. 3. Completeness of bid and correctness of signature. 4.

Computation of arithmetical errors in the bid price schedules.

5. Stated deviations from the bidding conditions, which might reflect on the substantial responsiveness of the bid and justify its rejection.

The detailed evaluation is carried out only for bids, which are substantially responsive. Bid evaluation considers price and other factors in a transparent manner and in accordance with the stipulated evaluation criteria stated in bidding documents such as cost compensations for the deviations from the bidding conditions taken by the bidders, differential price factors for guaranteed parameters etc. In case of procurement under international competitive bidding procedures, the bid price is converted into a single currency i.e. in the Indian National Rupees (INR). If the bidder wishes to pay a combination of amounts in different currencies, it may quote its price accordingly, but use not more than three foreign currencies. The foreign currencies in which the bid prices are quoted should be converted into INR by applying SBI bill selling rate on bid opening date.

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Once the lowest evaluated bidder is selected as above the next step is to determine whether the qualification requirement as stipulated in bidding documents are met and whether the bidder in question is capable to successfully execute the contract. An affirmative determination of the above is pre-requisite for award of contract to the bidder. In case the lowest evaluated bidder does not meet the above requirement, the similar determination is done for the next lowest bidder. If the bidder also fails, the process is continued, until the lowest evaluated and qualified bidder is chosen. 6) APPROVAL & AWARD OF CONTRACT A Tender Committee is formed to decide on the award of contract valuing 2 lacs and above. The members of Tender Committee at appropriate level shall consist of representatives each from Indenting, Procurement/Contracts and Finance department. NTPC determines to its satisfaction whether the Bidder selected as having submitted the lowest evaluated responsive bid is qualified to satisfactorily perform the contract in terms of the qualifying requirements stipulated in Bid Data Sheet. The determination will take into account the Bidder’s financial, technical and production capabilities, in particular to its contract, work in hand, future commitments and current litigation. It will be based upon an examination of the documentary evidence of the Bidder’s qualifications submitted by the Bidder in Attachment 3 to the bid, as well as any other information, as NTPC deem necessary and appropriate. An affirmative

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determination will be a prerequisite for award of the contract to the Bidder. A negative determination will result in rejection of the Bidder’s bid, in which event; NTPC will proceed to the next lowest evaluated bid to make a similar determination of that Bidder’s capabilities to perform satisfactorily. “The bidder which satisfies all the qualifying requirements and offers the least price is awarded the contract”.

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4.3: CONTENTS OF A BIDDING DOCUMENT The facilities required, bidding procedures, contract terms and technical, requirements are prescribed in the bidding documents. The bidding documents include the following sections: Section I – Invitation for Bids (IFB) Section II – Instructions to Bidders (ITB) Section III – Bid Data Sheet (BDS) Section IV – General Conditions of Contract (GCC) Section V – Special Conditions of Contract (SCC) Section VI – Technical Specifications and Drawings (TS) Section VII – Forms and Procedures (FP)

Documents Comprising the Bid The bid submitted by the Bidder shall comprise the following documents: 1.

Bid Form duly completed and signed by the bidder, together with all Attachments

2.

Price Schedules duly completed in all respect by the bidder.

3.

The bid shall also contain necessary details of the Equipment and Mandatory Spares to be imported from Associate/Collaborator by manufacturer or bidder

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Each Bidder shall submit with its bid the following attachments: (a) Attachment 1: Bid Security A bid security shall be furnished in a separate sealed envelope. Bids not accompanied by the requisite bid security in a separate sealed envelope, or bids accompanied by bid security of inadequate value, shall not be entertained and in such cases, bids shall be returned to the bidders without being opened. (b) Attachment 2: Power of Attorney A power of attorney, duly authorized by a Notary Public, indicating that the person(s) signing the bid has/have the authority to sign the bid and thus that the bid is binding upon the Bidder during the full period of its validity. (c) Attachment 3: Bidder’s Qualifications The Bidder shall provide satisfactory evidence that he and/or, where applicable, his collaborator/associate/partner(s) of Joint Venture: 

Is a manufacturer, who regularly manufactures equipment of the type specified and/or undertakes the type of work specified and has adequate technical knowledge and relevant experience for the works covered in the bidding documents.



Does not anticipate a change in ownership during the proposed period of execution of work (If such a change is anticipated, the scope and effect thereof shall be defined).

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

Has adequate financial stability and capability to meet the financial obligations pursuant to the Works covered in the Bidding Documents. (The Bidders should submit five (5) copies of their profit & loss account and balance sheet for the last five (5) years).

 Have adequate design, manufacturing and/or fabrication capability and capacity available to perform the work within the time period specified.  Has an established project management organization covering the areas related to engineering of equipment/systems, interface engineering, procurement of equipments and the necessary field services required for successful construction, testing and commissioning of all the power plant equipments and systems covered in the scope of work for the package. 

Has established quality assurance systems and organization designed to achieve high level of equipment/system reliability, during manufacturing and/or fabrication and field installation activities.



A company formed by the merger of two or more companies or divisions of such companies engaged in supply and installation of power generation equipments can also participate provided the constituent companies or divisions before merger individually or jointly meet the stipulated qualification requirements fully.

(d) Attachment 4: Eligibility and Conformity of the Facilities Documentary evidence that the facilities offered by the Bidder in its bid or in any alternative bid, (if permitted) are eligible and conform to the bidding 38

documents. The documentary evidence of the eligibility of the facilities shall consist of a statement on the country of origin of the plant and equipment offered, which shall be confirmed by a certificate of origin issued at the time of shipment. Attachment 4A: Special Tools and Tackles The bidder shall provide the details regarding Special Maintenance Tools and Tackles. The cost of these Tools and Tackles shall be included in the Bid Price. (e) Attachment 5: Subcontractors Proposed by the Bidder The Bidder shall include in its bid details of all major items of supply or services that it proposes to purchase or sublet, and shall give details of the name and nationality of the proposed Subcontractor, including vendors, for each of those items. Bidders are free to list more than one Subcontractor against each item of the facilities. Quoted rates and prices will be deemed to apply to whichever Subcontractor is appointed, and no adjustment of the rates and prices will be permitted. (f) Attachment 6: Deviations Deviations, if any, from the terms and conditions of Bidding Documents or Technical Specifications shall be listed only in Attachment 6 to the bid. The Bidder shall also provide the additional price, if any, for withdrawal of the deviations. Except for the deviations listed in Attachment 6, the bid shall be deemed to comply with all the requirement in the bidding documents and the bidders shall be required to comply with all such requirements of bidding 39

documents and technical specifications without any extra cost to NTPC irrespective of any mention to the contrary, anywhere else in the bid, failing which the bid security of the Bidder may be forfeited. Attachment 6A: Certificate Regarding Acceptance of Important Conditions Bidders are required to furnish a certificate indicating their compliance to the provisions, duly signed and stamped by the bidder, in a separate sealed envelope. Any bid not accompanied by such certificate in a separate sealed envelope shall be rejected by NTPC and returned to the Bidder without being opened. (g) Attachment 7: Alternative Bids Bidders wishing to offer technical alternatives to the requirements of the bidding documents must first price the NTPC’s design of the facilities as described in the bidding documents, and shall further provide all information necessary for a complete evaluation of the alternatives by the NTPC, including drawings, design calculations, technical specifications, breakdown of prices, proposed installation methodology and other relevant details. Only the technical alternatives, if any, of the lowest evaluated bidder conforming to the basic technical requirements shall be considered by the NTPC. (h) Attachment 8: Local Representation If a foreign bidder has engaged an Indian agent, it will be required to give the following details in its bid as per the format enclosed in the Bidding documents:  The name and address of the local agent; 40

 What Service the agent renders; and 

The fixed amount of remuneration for the agent included in the offer.

(i) Attachment 9: Deemed Export Benefits The CIF (Cost of Insurance & Freight) value of import content in the Ex-works (India) price quoted in Schedule-2 of the bid, if any, shall be necessarily declared by the bidders in Attachment-9 to the bid. The relevant certificate for claiming the deemed export / custom duty benefits shall be issued on the aforesaid declaration basis only. In case, no such import content is envisaged in the bid or the CIF value of import content to be declared is zero, the bidder shall indicate "NIL" against the CIF value of import content. In case where no value is indicated by the bidder against the CIF value of import content in Attachment -9 or statement / any declaration like 'later', 'to be furnished later', 'NA' etc. are indicated by the bidder, in such cases the CIF value of import content in the bid shall be considered as "NIL" for the purpose of evaluation of bids and issuance of relevant certificate for claiming the deemed export / custom duty benefits

(j) Attachment 9A: Customs Duty Benefits for Import of Construction Equipment Declaration regarding the Customs Duty Benefits, for Import of Construction Equipment Considered in the bid.

41

(k) Attachment 10: Functional Guarantees The declaration on the Guaranteed parameters and declaration on demonstration parameters as per NTPC's format. (l) Attachment 11: Erection Tools and Tackles List of Erection Tools and Equipments which the bidder proposes to bring to site in case the contract is awarded to him. (m) Attachment 12: Technical Data Sheets Technical Data Sheets duly filled in as per the NTPC's format. (n) Attachment 13: Bought Out Items Details of bought out items to be directly dispatched by the sub-vendor(s) to site. (o) Attachment 14: Quality Assurance Programme Details regarding the overall quality management & procedures which the bidder proposes, to follow during various phases of execution of the contract. (p) Attachment 15: Additional Information Any additional Information which the bidder wishes to provide in his bid. (q) Attachment 16: Milestone Schedule Details regarding the timing & sequence of all key activities necessary for successful completion of the facilities and giving the important milestone as per NTPC's format. (r) Attachment 17: Price Adjustment Data Details regarding Price Adjustment as per NTPC's format. 42

(s) Attachment 18: Equipment and Mandatory Spares to be imported from Associate/Collaborator Details of Equipment (including type test) and Mandatory Spares to be imported from Associate/Collaborator by the Manufacturer or the bidder, as per NTPC's format. (t) Attachment 19: Electronic Fund Transfer Authorization Form Electronic Fund Transfer Form duly filled in as per NTPC's format. (u) Attachment 20: Declaration on Fraud Policy Form of Acceptance of Fraud Policy duly filled in as per NTPC's format.

The Bidder is expected to examine all instructions, forms, terms, specifications and other information mentioned in all the sections as well as attachments stated above in the bidding documents. Failure to furnish all information required by the bidding documents or submission of a bid not substantially responsive to the bidding documents in any aspect will be at the Bidder’s risk and may result in rejection of its bid. The Bidder is advised to visit and examine the site where the facilities are to be installed and its surroundings and obtain for itself on its own responsibility all information that may be necessary for preparing the bid and entering into a contract for supply and installation of the facilities. The costs of visiting the site shall be at the Bidder’s own expense. The Bidder and any of its personnel or agents will be granted permission by NTPC to enter upon its premises and lands for the purpose of such inspection, but only upon the express 43

condition that the Bidder, its personnel and agents will release and indemnify NTPC and its personnel and agents from and against all liability in respect thereof and will be responsible for death or personal injury, loss of or damage to property and any other loss, damage, costs and expenses incurred as a result of the inspection.

PRICE SCHEDULES Bidders shall give a breakdown of the prices in the manner and detail called for in the Price Schedules. The Bidders shall present their prices in the following manner: Separate numbered Schedules shall be used for each of the following elements. The total amount from each Schedule (1 to 4) shall be summarized in a Grand Summary (Schedule 5) giving the total bid price(s) to be entered in the Bid Form. 

Schedule No. 1- Plant and Equipment including Type Tests charges and Mandatory Spares Parts supplied from Abroad



Schedule No. 2- Plant and Equipment including Type Tests charges and Mandatory Spares Parts to be manufactured within Employer's (NTPC) Country.



Schedule No. 3- Local Transportation including port handling, port clearance, port charges, Inland transit Insurance and other local cost incidental to delivery of Plant & Equipment and Mandatory Spares. 44



Schedule No. 4- Installation Services including Erection Works, insurance covers other than inland transit insurance and other services.



Schedule No. 5- Grand Summary (Schedules Nos. 1 to 4)



Schedule No. 6 -Recommended Spare Parts



Schedule No. 7 -Taxes and Duties, applicable on Ex-Works (India) Price Component (Schedule-2) in respect of direct transaction between the Bidder and Employer (NTPC), not included in Bid Price.



Schedule No. 8A - Break up type test charges quoted in Schedule-1



Schedule No. 8B - Break up type test charges quoted in Schedule-2



Schedule No. 9 - Unit Adjustment rates.

4.4: E- PROCUREMENT

45

E

-PROCUREMENT is very important to achieve e-governance and for applicability of uniform procurement process to all units. It has the ability to reduce procurement cost by reduction in lead

time, reduction in transaction cost and cycle times etc. E-procurement also helps in building collaborative relationship with suppliers. It enables greater transparency; implements best practices, and increases the vendor base. It also reduces the possibility of cartel formation and generates reasonable competition. It helps to achieve savings in administrative and process cost. E-procurement enhances the security and it is also a step towards ERP systems for the organization. CONCEPT AND SCOPE 46

E-procurement is purchase and sale of supplies and services and management of procurement process over Internet. Manual tender processes can be long and cumbersome, often taking three months or longer, which is costly for both buyer and supplier organizations. E-Tendering replaces these manual paper-based tender processes with electronically facilitated processes based on best tendering practices to save time and money. Through E- Tendering, NTPC is able to manage the tenders coming in, with all tenders stored in one place. It can cut and paste data from the electronic tender documents for easy comparison in a spreadsheet. Suppliers' costs in responding to Notice Inviting Tender (NIT) are also reduced as the tender process cycle is significantly shortened. E-tendering offers an opportunity for automating most of the tendering process: from help with preparing the tender specification; advertising, to tender evaluation and placing of the contract.

E-PROCESS WORKFLOW

47

Fig-8: Process of E-procurement The process of e-procurement shall be taken up at Contracts & Materials (C&M) department after receipt of the requisition or the indent. The indent 48

duly approved by the competent authority, as per Delegation of Powers (DOP) handbook of NTPC, is a pre-requisite to initiate e-procurement action. Once the indent is approved, the C&M department then plan and organize the procurement action. In case of open tender contract valuing 2 lacs and above, a Tender Committee is formed for preparation and approval of Qualifying Requirements (QR). Then, various bidders are invited online to bid for various packages. A Notice Inviting Tender (NIT) is published online on NTPC’s E-procurement portal. The interested bidders can purchase the tender document of the required package, by sending a demand draft or a cheque of the required amount, as mentioned in NIT, in favour of NTPC. Once the payment is received, a login id and password is given to the bidder to view and download the tender document. Clarifications regarding QR or any other technical queries in the document are resolved online through e-mails, message chart boards etc. Based on the clarifications to the bidders, if required, the tender committee may issue the necessary amendments. These amendments shall be automatically forwarded to all the vendors who have downloaded the documents. The bidders shall prepare the bids online. Till the time they are submitting their bids, they shall be saving the bids at the server under their Digital Certificate. Bidders are then required to submit and upload their bid online prior to a predefined date and time, as mentioned in the NIT, on the NTPC’s e-procurement website based on the tender requirements defined in the tender documents, viz: 49

 Qualifying Requirements documents,  EMD details 

Technical data sheets and Commercial bid etc. However, the Earnest Money Deposit (EMD) / Bid Security of a particular

amount, have to be submitted offline in a separate sealed envelope. Any bid not accompanied by an acceptable bid security in a separate sealed envelope shall be rejected by NTPC as being non-responsive and returned to the bidders without being opened. Once the bids are uploaded by all the bidders, neither any bidder nor any employee of NTPC can access the server prior to bid opening date and time. At the time of bid opening, using individual digital certificates & passwords, the tender committee shall open the EMD documents first, then the qualifying requirement details shall be opened, followed by the Technical bid opening and the technical data sheets and the deviation statement – technical. The commercial price bids of only those bidders who are meeting QR and are TECHNICALLY acceptable, and have submitted the necessary EMD will be opened on later date by the tender committee. On the date of price bid opening, a comparative statement of bid price schedules is automatically generated online and only the members of tender committee have access to both the quoted price and ranking of each bidder. However, each bidder can only view the rankings and not the quoted price of other bidders. 50

REVERSE AUCTION The next step is called a REVERSE AUCTION. It is a type of auction in which the role of the buyer and seller are reversed, with the primary objective to drive purchase prices downward. In an ordinary auction (also known as a forward auction), buyers compete to obtain goods or services. In a reverse auction, sellers compete to obtain business. During a reverse auction, all the interested bidders log on to the auction site and inputs several quotes, in multiples of a specified amount, over a 30-90 minute period. These quotes reflect the prices at which they are willing to supply the requested package. As the bidder can only view its relative position with respect to other bidders, he bids down the price until the price quoted by him becomes the lowest of all. After completion of reverse auction, the L1 bidder (the bidder which quotes the lowest price) will submit the item rates within 48 hours (2 days) of completion of reverse auction. The percentage reduction of prices achieved during the auction is uniformly distributed over all the items. In no case, the individual item rate can be revised to higher value than indicated in the original item rate schedule against which the reverse auction has been conducted. After receiving the item rate, the tender committee shall put up recommendations to the competent authority off line. After approval of competent authority the order shall be released to the L1 bidder as per normal procedure.

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BENEFITS OF E-PROCUREMENT MODEL 

Reduced tender cycle-time.



Fast and accurate pre-qualification and evaluation, which enables the automatic rejection of suppliers that fail to meet the tender specification.



Faster response to questions and points of clarification during the tender period.



Reduction in the labour intensive tasks of receipt, recording and distribution of tender submissions.



Reduction of the paper trail on tendering exercises, reducing costs to both the organization and the suppliers.



Improved audit trail increasing integrity and transparency of the tendering process.



Improved quality of tender specification and supplier response.



Provision of quality management information.

5. LIMITATIONS OF THE STUDY 52



Some data is to be kept confidential by the organization and hence, cannot be included in the report specifically the ongoing tenders which are under evaluation by the department.



Exact financial figures especially with respect to price schedules etc., with name of any bidder cannot be presented.

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6. RECOMMENDATIONS ♦

Price bids should be filled online from various bidders, so that arithmetic accuracy can be maintained.

♦ E-Procurement process should be done more frequently. ♦ Any technical and commercial details in the evaluation reports should be furnished with proper reference along with the page numbers as mentioned in the bid documents. ♦

Strict instructions should be given to all the bidders to furnish supporting schedules along with the annual reports, without which complete Financial Analysis cannot be done.

♦ Bidders should be given proper training sessions for filling of bid forms and schedules.

7. ANNEXURE-1

A typical example of preparation of cost estimate for one package: 54

Summary of the cost estimate exercise: When the cost estimation is done the following output is generally is derived:

Abstract cost Estimate Package name(Equipment or system to Lift Pump Equipment Package be purchased) Project name

Farraka super thermal power project

Bidding pattern

ICB

Financing

ECB/DCB/internal resources

Cost estimate

Rupees in million

(A) supply (equipment ) As per detailed calculation Ex works price

1614.39

Type test charges@ ------ %

1.07

(B) Spares @ ------- %

96.87

(C) Erection F & I ------ %

68.45

Erection

581.18

(D) Civil cost

836.60

Sub total (A to D)

3198.56

(E) Duties and taxes

285.93

Total (A to E)

3484.49

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The total of supply cost, erection cost and civil /structural cost are estimated based on detailed quantity and rates as under:

Amount = Quantity (estimated by engineering department) x Rate (to be decided based on available data or data to be collected by cost engineering)

The quantity for any package for system is decided based on size of plant and the associated billing quantity.

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7. ANNEXURE-2 My experience of attending one of the bid openings in NTPC Limited:

Package name: switchyard package for lata tapovan hydro power plant Bid opening date: 16th June, 2009 Mode of financing: external commercial borrowings (ECB)/ own resources Mode of tendering: open tender enquiry (OTE) Bidders: L & T Limited HCC Limited Soma enterprise limited Gammon (India Limited) Patel engineering limited

Specifications of bid opening: • • • •

Only two members are allowed from each party. Bid security should be valid for 225 days or 7 and half months. Guarantee has to be furnished from the list of banks. Both, bid guarantee and attachment 6A of all the bidders should be word by word. If there is any deviation in the required documents then the bid of the concerned party will not be opened. • The discount letter should be submitted along with the bid security otherwise it will not be relevant.

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7.3 ANNEXURE-3

RATIO ANALYSIS OF L&T LTD. (one of the bidder that has submitted the bid for lata tapovan hydro power plant project)

INR Million S.No.

Particulars

1 Turnover

2004-05

2005-06

2006-07

9168 11706.74 15945.82

2 Profit After Tax

391.58

489.04

711.81

3 EBIT

560.77

740.41

1046.85

4 Share Capital

179.87

179.87

179.87

5 Reserves & Surplus

1236.8

1491.27

1903.95

6 Net Worth

1416.67

1671.14

2083.82

7 Capital Employed

1771.09

2381.07

2985.69

4.27

4.18

4.46

9 RONW (%) (PAT / NW)

27.64

29.26

34.16

10 ROCE (%) (EBIT / CE)

31.66

31.10

35.06

8 Net Profit Ratio (%)

8. CASE STUDY

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E-Procurement in Government of Andhra Pradesh, India Abstract The Government of Andhra Pradesh (GoAP) has implemented many statewide e-Government applications since the year 2000, when the Central Government of India enacted the IT Act of 2000 to provide legal recognition to electronic transactions. As a part of these initiatives, GoAP has set up an E-Procurement Marketplace, linking government departments, agencies and local bodies with their vendors. The main objectives of the e-Procurement initiative are to: reduce the time and cost of doing business for both vendors and government; realize better value for money spent through increased competition and the prevention of cartel formation; standardize the procurement processes across government departments/agencies; increase buying power through demand aggregation; provide a single-stop shop for all procurements; allow equal opportunity to all vendors; bring transparency and ultimately reduce corruption.

Application context The GoAP procures goods, services, works and turnkey contracts worth $ 2.0 billion every year. This procurement is done centrally through a single unit, as well through individual Government agencies who manage their own procurement needs. Many different mechanisms are used for procurement such as tenders (open, limited, single), rate contracts and catalogue purchases. Procurement processes are governed by the guidelines of the GoAP and sometimes of external agencies like the World Bank, which may be funding a project. Tenders are announced in newspapers through paid advertisements, and suppliers were expected to buy tender documents at a price of $ 250. Prior to the introduction of an e-Procurement platform, procurement in Government departments was carried out through a manual tendering process. This process involved obtaining internal approval of the project, publishing a Notice Inviting Tenders (NIT) in several media outlets, bid submissions (voluminous sheaths of paper) by suppliers, bid evaluations by buyers, and finally, the awarding of the procurement order and signing of agreements. The complete process required a long chain of internal authorizations and scrutiny 59

(at times involving several departments), several visits by suppliers to departments, and the generation of reams of paper-based statements and evaluations. The manual tender system was suffering from the following deficiencies:

i.

Discrimination and delay in issue of tender schedules to suppliers: Govt departments control the issuance of tender documents to the bidders, after verifying their applications. There existed an element of subjectivity and discrimination in this process, in addition to delays in the preparation of tender schedules due to shortages of paper and related stationary items in the Government Departments. As a result, on occasion the tender documents were not issued to the bidders on the announced dates, putting some of the bidders in disadvantageous positions.

ii.

Cartel formation to suppress competition: Through dubious means, the participating bidders would gather the list of prospective bidders for a procurement request. They would use this information to lobby for formation of syndicates or cartels and bid at higher quotations.

iii.

Physical threats to bidders: In regions plagued by factions and/or Mafia groups, genuine bidders were physically threatened and prevented from submitting their bids. The bidder or his agent had to risk their physical safety to submit bids in the tender box placed in the office of the tender inviting authority. The media often reported such incidents, showing the Government in a bad light.

iv.

Tender Boxes at Multiple locations: To counter the menace of contractors’ cartels and physical threats to bidders, some Government Departments started keeping the tender boxes at multiple locations. Instead of yielding the desired results, however, this practice was putting departmental officials who had to collect the tender boxes after closure of tender submission time at risk. Physical transportation of tender boxes from multiple locations to a central point also proved to be a risky proposition in such an environment.

v.

Tampering of tender files: For the purposes of evaluation, the bid documents are transported across the administrative hierarchy, which introduces the risk of tampering or loss along the way. The transportation 60

of bid documents, manually and through surface mail, is also a time consuming activity. vi.

Delays in finalization of tenders: Red tape, lack of transparency, and manual movement of files across the administrative hierarchy was resulting in inordinate delays in the finalization of tenders. Typically, tenders for major projects would take 90 days to 150 days to process. These delays were contributing to cost and time overruns for the projects.

vii.

Human interface at every stage: The manual system exposed the departmental personnel to the bidders at every stage of the process viz., sale of tender schedules, issue clarifications, bid submission, bid evaluation. Such repeated contact between bidders and departmental staff could lead to subjectivity, favoritism and other undesirable practices.

viii.

Lack of Transparency: Procurement is considered a sensitive function, with all related information tightly controlled and closely guarded by government departments, resulting in a severe lack of transparency in the entire process. This lack of transparency leads to misinformation and a lack of trust in the system by the bidders, media and the citizens.

A New Approach The severe shortcomings in the manual tender system had an adverse effect on the reputation of Government departments. Delays in the finalisation of suppliers for materials and services for government projects had crippling impacts on the completion of projects and delivery of services to the citizens. A cabinet sub- committee on tender reforms instituted by GoAP in the year 2000 recommended the creation of an e-Procurement market place. This would facilitate online tendering based on Internet technology to provide ‘any where any time’ access to the bidders for participating in tendering. This would also eliminate the non value adding activities like manual sale of tender documents, manual opening and reading of bids, preparation of comparative statements (as they are automatically available), audit/cross check of comparative statements, time spent in movement of files from one person to another, manual creation of purchase order and delivery schedule etc. Automation of the procurement transactions reduces human error, enhances the integrity of the data, 61

brings in transparency to the Government procurements and facilitates standardisation of processes. The entire e-Procurement process was designed to avoid human interface i.e., supplier and buyer interaction during pre bidding and post bidding stages. The application ensures total anonymity of the participating suppliers, even to the buyers, until the bids are opened on the platform. The e-Procurement application provides automatic bid evaluation based on the evaluation parameters given to the system. These improved processes have eliminated subjectivity in receipt and evaluation of bids and has reduced corruption to a significant extent.

To bring in transparency in e-Procurement, tender documents containing all details are hosted on the web site. The documents can be downloaded by the interested suppliers free of cost, from the day of publication of a tender. Suppliers are no more dependent on the officials for various details. At any time in the procurement cycle, any person associated with the transaction can check and know the status of the transaction. This saves time and effort involved in finding out the status of a purchase order, besides enabling better planning of inventory.

At the outset, an effort was made to standardize the procurement processes and forms followed by various departments especially for public works tenders. Today, all the departments follow common tendering process and forms for works tenders. These processes have been re-engineered to further improve the efficiency and curtail subjectivity in tender evaluation on the part of the department users. A similar exercise is underway for products as well.

Implementation Challenges 

The first challenge was to arrive at a sustainable business model with proper implementation strategy. The GoAP considered the following three alternative business models for implementation of e-Procurement. 1. Government owned – government operated 2. Government owned – operated by a private operator 62

3. Public Private Partnership model The first two models required fresh Government investment in an area where there was no prior experience in AP or any other state. These models were dropped from consideration as senior government functionaries were apprehensive about the return on investments and possible criticism in case of failure of the system. It was therefore decided to implement eProcurement in a Public Private Partnership (PPP) model wherein the private partner would bring expertise in technology, invest upfront in setting up the exchange and recover the costs by charging the user departments for completed transactions. The PPP model was selected because the private partner takes on the risks related to changes in technologies, and return on investment. This model combines accountability with efficiency, as the services are governed by strict service level contracts. Moreover, GoAP had experienced success with the PPP model in some other projects.

In view of the unique nature of the project, the GoAP engaged M/s PricewaterhouseCoopers as consultant for assisting GoAP in drawing project requirements, developing Request for Proposal (RFP) documents to select a partner and to advise in the selection process for establishing an eProcurement exchange. Only vendors with an existing e-procurement software or platform were considered for the project. Ground-up development of the exchange was avoided to expedite the implementation and also to benefit from the experience that the vendor was expected to bring from earlier implementations of similar projects. A consortium lead by M/s C1 India Pvt. Limited was selected as the private partner, based on competitive bidding to implement the project through PPP model.

The PPP model is of the Built Owned and Operated (BOO) type. In this case, M/s C1 India owns the system. The GoAP registers the Web site domain name and it is the absolute owner of data. As per the agreement, the GoAP reserves the right to buyout the software and hardware at a prespecified written down value at the end of the present contract period i.e., March 31, 2007. The GoAP has not guaranteed any specific revenues on this model but has assured that all procurements costing above Rupees one 63

million by government departments, PSUs and local Government bodies will be done exclusively through this Portal.

Though the ultimate objective of GoAP is to have a government-wide eProcurement solution, considering the complexities involved, a strategy was evolved to approach implementation in a phased manner. A pilot was conducted in four selected departments to prove the new system and then roll out to other departments. Over a period of 9 months, the pilot was used to create templates for various types of procurement practices prevalent in Government departments to set the stage for rollout across other departments. In order to effect a gradual transition from the conventional tender system to e-Procurement, the GoAP issued executive orders and made e-Procurement mandatory in the pilot departments for all procurements exceeding a value of $250,000 in the first instance. This threshold limit was subsequently lowered to $125,000 at the end of the Pilot phase. After the success of the pilot phase, e-Procurement was immediately rolled out in all the remaining departments, for all procurement above $25,000. Within 30 months, the platform was servicing 8 Government departments, 13 Public sector Units, 51 Municipalities and 5 Universities with a cumulative turnover crossing $ 8.5 billion from 12,441 transactions.



The second challenge was to ensure interdepartmental coordination, as e-Procurement centralizes the processing of tenders and touches several departments located in different parts of the state. A high level Steering Committee (Project Implementation Committee) chaired by the Chief Secretary of the state, comprising the Secretaries, Heads of all the participating departments and representatives of the private partner was formed to promote coordination. The Steering Committee dealt with issues related to Business Model, selection of private partner, interdepartmental coordination, Business Process Reengineering and other important issues in the implementation of the project. The Information Technology and Communications Department of the GoAP was made the nodal agency to oversee the implementation of the project.



The third challenge was Change Management as the implementation involved adoption of new ways of doing things for a variety of stakeholders. Setting up the e-Procurement exchange was not difficult in terms of its technology components, but getting stakeholder buy-in to adopt the platform 64

was a big challenge. The various steps taken to manage change with the Stakeholders are enumerated below: o To ensure buy-in of the top management and to resolve procedural issues, the Steering Committee chaired by the Chief Secretary of GoAP met once every month during the Pilot stage. The committee considered in great detail all issues that arose during implementation and the problems were resolved then and there without loss of time. o Meetings were held by the Chief Minister on regular basis to monitor the progress. Procurement targets were fixed for each participating department and were monitored closely. These targets were made a part of the Performance Indicators that were used to measure the performance of key officials in the pilot departments. o Project Champions were identified within each department. Core groups were formed in the user departments to chalk out a strategy for implementation within the departments. Fortunately, the Indian Institute of Management, Ahmedabad (IIM-A), had trained the key functional officials from the target departments that were associated with the e-Procurement project as Chief Information Officers (CIO). They worked closely with the Project Manger, GoAP and C1 India project team. o The CIOs functioned as a bridge between the user departments and the technology experts i.e., service provider. The CIO’s assisted the Steering Committee in bringing in necessary regulatory changes, and helped in reengineering the departmental procurement process. The CIOs acted as project champions within their department driving the implementation and the change management process. o The stakeholders were involved in the detailed ‘As-Is’ and ‘To-Be’ process studies. Feedback was taken from the Builders Association of Andhra Pradesh and Small Scale Industries Manufactures Associations on the ‘As Is’ and ‘To Be’ processes. The gaps thrown by the ‘To-Be’ process study were addressed through appropriate customisations, and the agreed upon process by the stakeholders were mapped on the software. o To effectively communicate the objectives and benefits of the project, training and workshops were conducted for both the department users and the suppliers. At least 400 department users and 1000 suppliers were given hands-on training during the Pilot phase. Training and workshops are a regular feature even in the roll out phase whenever a version change of software is introduced. o Detailed training kits and FAQs were prepared and hosted on the web site for the benefit of users. These workshops also served as good forums to receive user feedback on the application. This feedback was always analysed and appropriate changes were made in the process of the application.

65

o The service provider runs a strong and committed call centre type help desk on a 24X7 basis to record and address all the issues of the users. 

The Fourth challenge was resolving the security and authentication issues of the platform. Stakeholders have to be completely convinced that the transactions on the platform are secure. The identity of the participating bidders, and the quotations that the bidders make, are very sensitive information in the entire tendering process. The eProcurement solution was designed with extensive security features to help ensure that all activities are logged, no unauthorized person has access to data, all sensitive data is encrypted, and that the system can be restored in a minimal time in case of a disaster or system crash. A sound security policy for eProcurement has been implemented using the following features to ensure security in the platform.  Two-factor authentication  Digital signatures to ensure non-repudiation  Bid encryption at the database  Online Antivirus scanning  128 bit SSL encryption  Audit trail of each activity  Privilege-based user access  Time stamping  Firewall for screening system access  Access control system  Intrusion detection system (network and host)  Regular back up of data  Disaster recovery site

The e-Procurement software was audited for security by a third party during the Pilot phase in August 2003. The security audit recommended better functional controls. There were no major security lapses identified by the auditors. M/s C1 India complied with the recommendations within a suitable time frame to the satisfaction of the GoAP.

Benefits and Costs

66

The initiative has transformed the procurement process in government departments. The automated processes and work flows have improved internal efficiency within the departments; shortened tender cycle times, eliminated subjectivity in the evaluation of tenders with system based auto bid evaluations, and have reduced corruption.

o

Reduction in tender cycle time: In the pre e-Procurement era, the departments used to take 90-135 days for finalization of high value tenders. The tender cycle time has gradually come down to an average of 42 days over a period of one year and further reduced to 35 days at the end of the second year. This improvement is due to automated workflows, the ability to track and monitor file movements through a function called ‘tender tracker and tender monitor’, which pictorially displays the tender file status, indicating the number of days each government worker has taken to clear the file. These software features have made the procurement processes transparent. There is greater accountability since the electronic records/ documents can be retrieved at any given time and all the activities of a system user are logged in the system. The works departments has been able to divert surplus resources from procurement wings to other needy wings like works execution.

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Reduction in opportunities for corrupt practices: the e-Procurement system allows a supplier to view the NIT, download bid documents and Bill of quantities, free of cost on ‘any where’ and ‘any time’ basis from the Internet. This has empowered the supplier as he is no more dependent on the government workers for issue of RFPs, clarifications on the bids, bid submission, information on tender evaluation status, etc. The entire eProcurement process has been designed to eliminate the human interface i.e., supplier and department interaction during pre bid and post bid processes has been minimized. The automatic tender evaluation functionality helped to reduce subjectivity in tender evaluation and helped to curb opportunities for corrupt practices to a significant extent and increased the accountability of procurement officials. In terms of transparency, any supplier or an ordinary citizen can get information about tenders which are live on the platform through a search engine on the home page. The NIT, bid documents, Bill of Quantities are available to a citizen for free downloads. A supplier participating in a tender 67

knows the list of other participating suppliers, the documents furnished by his competitors, price quotations and the evaluation result, as soon as a stage is completed by the departments in the system. Short information on the status of tenders and award values will also be available to any citizen accessing the web site.

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Cost Savings: One way to estimate cost savings is to compare the percentage discount of Tendered Contract Value over the Estimated Contract value for service contracts awarded before and after the implementation of the e-Procurement system. The following table shows comparative savings in costs for works departments based on historical data available with the Commissionerate of tenders, which is the nodal agency for finalization of tenders costing above $0.45 million value for works departments, like the Roads & Buildings department and Irrigation department. Tenders processed through the e-Procurement platform in the pilot phase during 2003-04, the first year of the initiative, yielded a reduction of 16% in the quotations in comparison to the previous years when the procurement was manual.

Tender Analysis (Source - Commissionerate of Tenders, GoAP) Year

Mode procurement

of No of Estimated tender Contract s Value in $(Million)

Tendered Contract Value in $(Million)

Percenta ge discount

2001-02 Conventional Mode 188

177

166

- 2.65

2002-03 Conventional Mode 125

126

115

-8.65

2003-04 Conventional Mode 53

83

75

-9.00

2003-04 eProcurement Mode

166

124

-25.00

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The project encourages bidders to participate in government tenders. Supplier participation has increased from an average of 3 per tender in conventional mode to 4.5 in e-Procurement mode. The cartels are eliminated and even small and medium suppliers are now able to bid, as the platform facilitates any-where any-time bidding. The departments have reaped 68

significant cost savings of an average reduction of 20% in cost for the procurement transactions done through the exchange during the year 200304 and 12% in 2004-05 due to a competitive environment.

There is also a substantial reduction in the advertisement costs in the press media, as e-Procurement tender notices were shortened to contain only basic information on the name of work, estimated costs and the URL of the eProcurement site. There has been a 25% saving in the column space used, resulting in savings of approximately $0.56 million in a year. Transparency in the bidding process and in the system of automated tender evaluation through smart forms with parameterized qualification criteria has reduced subjectivity in the tender award process and reduced corruption. The MIS feature in the system reveals data on government procurements instantaneously to the bureaucrats and ministers. Besides, it has made a visible social impact, as the citizens are assured that government procurement is conducted in a transparent manner, saving taxpayers’ money.

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Costs of implementing the system: A lean project team consisting of a Project Manager and an Asst. Project Manager (both trained as CIOs by IIMA) reporting directly to the Secretary of the IT&C Dept. has overseen the implementation. The IT&C Department spent Rs 0.55 million on training and Rs. 7.2 million for purchase of Desktops, printers, UPS and Internet connections (ISDN connections, Modems) for the departments in which the project was piloted. The GoAP had engaged PwC to prepare an eGovernance road map and blue print for 50 major departments, identify 5 core projects, and implement these 5 core projects for a fee of Rs 16.2 million. About 15% of this expenditure can be apportioned for the eprocurement project. As per the agreed business model, the private partner has invested upfront in hardware and software for establishing an e-Procurement exchange for GoAP and there are no costs to the government on this project. It is estimated that the private partner has incurred a capital expenditure of $1.12 million on software and hardware, and an operational expenditure of $0.54 million per annum on the e-Procurement platform. In order to incentivize the suppliers using the platform, no charges were collected from the bidders participating in tender related transactions on the e-Procurement platform. 69

The government has incurred expenditures of $0.62 million on hosting charges @ $101.6 per tender, and transaction fees @0.24% on the completed transaction fee to the Private partner during the pilot period. However, in the rollout phase a new business model was evolved to shift the burden from the government to bidders, with every participating bidder paying a transaction fee @ 0.04% of tender value, with a maximum cap. The transaction fee structure payable by a bidder is set up to be less than the tender fee charged in the manual tender system.

Key Lessons

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The support of political leadership and the formation of a high-powered steering committee (project implementation committee) with a mandate to take decisions on all issues were important factors for successful implementation of the e-Procurement project. Insistence on a single mode of bid submission through the e-Procurement platform was a decisive factor in the adoption of the system by suppliers. A participative design process that involved workshops attended by department users, suppliers/contractors was used to draw user requirements. Subsequent training of users was a major factor in developing the application to the satisfaction of users. The pool of CIO’s from various government departments trained at IIM-A, acted as change agents in implementing e-Procurement. The pace of implementation accelerated with Chief Information Officers from different domains taking over as project champions. Implementation needed enormous efforts in change management. The users were slow to adapt to the changes in initial period but the project ramped up once the users became comfortable with the new system. The selected Application Service Provider (ASP) business model under Public Private Partnership was helpful in scaling up the transactions during roll out, as the private partner has resources to meet the challenge. A rational and affordable Pricing model based on value and number of bids per tender is also very important for sustaining the e-Procurement initiative. Cost to government with ‘No Cost’ to supplier in the Pilot phase, and Cost to supplier with ‘No Cost’ to government departments in the roll out phase, facilitated easy acceptance from suppliers in the early stages and speedy roll outs to government departments in the later stages. 70

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Committed project teams from both the service provider and the Government, 24X7 help desk, strong security features, deployment architecture and MIS have contributed to the overall success of the eProcurement platform in AP.

9. LEARNINGS FROM THE PROJECT:

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• Bidding and tendering procedure for the procurement of large value capital goods. • Various sections of Bidding Documents and the clauses included there in. • Qualifications of suppliers/contractors to participate in bidding process. • Types of tenders like Competitive Bidding, Limited Tendering, Open Tendering, Restricted Tendering and Single Source Procurement. • Various aspects included in E-Procurement model and how Eprocurement can overcome the shortcomings of manual bidding procedure. • Problems that can be encountered while implementation of Eprocurement model. •

Benefits and costs involved in implementation of E-procurement process.

• Various aspects included in financial analysis of any company.

10. CONCLUSION

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This report is meant to familiarize the reader with different aspects involved in Procurement of Large Value Capital Goods., manually as well as electronically. In each chapter of this report, all the concepts and definitions have been discussed in detail in a lucid manner with the main objective of gaining insights into the bidding process. The facts and figures included in the report are supported with the suitable graphs and diagrams wherever required. Also, care has been taken to arrange all the material in a clear and logical manner. As far as possible, technical terms have been avoided and language has been kept simple for the better understanding of the reader.

11.

REFERNCES

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 Bidding documents 

NTPC-Delegation of Powers (DOP)

 Tender evaluation reports  NTPC Office Circulars 

http:// www.ntpc.co.in



www.ntpc-tender.com



http://en.wikipedia.org/wiki/Reverse_auction

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