PUBLIC PROCUREMENT & BID-RIGGING

Presented By:Suneeta Mohapatra

Roll No. 81003150006LLM, NMIMS, School of Law

PUBLIC PROCUREMENT

Public procurement in India is a major activity within the Government, not merely for meeting its day today needs but also for underpinning various services that are expected from the government e.g., infrastructure ,national defence and security, utilities, economic development ,employment generation social service and so on.

PUBLIC PROCUREMENT CONTD....

There is no single central body that is dedicatedly responsible for defining procurement policies and procedures. General Financial Rules (GFR) 2005 is a voluminous document which contains 293 rules, 16 appendices and a number of forms for different purposes. In addition, a set of guidelines is issued by Ministry of Finance (Manual on Policy and procedures on Purchase of Goods). The CVC has also issued numerous guidelines and instructions dealing with model procurement practices.

BID RIGGING : The explanation to sub-section (3) of

Section 3, of the Act defines “bid rigging” as “any agreement, between enterprises or persons referred to in sub-section (3) engaged in identical or similar production or trading of goods or provision of services, which has the effect of eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding.”

BID RIGGING IS ANTI-COMPETITIVE

Bidding, as a practice, is intended to enable the procurement of goods or services on the most favourable terms and conditions. Invitation of bids is resorted to both by government (and government entities) and private bodies (companies, corporations, etc.). But the objective of securing the most favourable prices and conditions may be negated if the prospective bidders collude or act in concert. Such collusive bidding or bid rigging contravenes the very purpose of inviting tenders and is inherently anti-competitive.

ANTI-COMPETITIVE AGREEMENT (SECTION-3)   (3) Any agreement entered into between

enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which—

(a) directly or indirectly determines purchase or sale prices;

(b) limits or controls production, supply, markets, technical development, investment or provision of services;

ANTI-COMPETITIVE AGREEMENT (SECTION-3) CONTD.... (c) shares the market or source of production or

provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way;

(d) directly or indirectly results in bid rigging or collusive bidding, shall be presumed to have an appreciable adverse effect on competition: Provided that nothing contained in this sub-section shall apply to any agreement entered into by way of joint ventures if such agreement increases efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.

COMPETITION CONCERNS ARISING OUT OF ANTI-COMPETITIVE CONDUCT OF BIDDERS

Market Sharing and Cartel formation

Bid rigging and Collusive bidding

Abuse of Dominance

Information asymmetry and its impact on Competition

COMPETITION CONCERNS ARISING OUT OF ANTI-COMPETITIVE CONDUCT OF BIDDERS CONTD....

Limited/Single Tender Enquiry

List of Registered Vendors

Bureaucratic Hassles and Complex Procedures

INQUIRY INTO BID RIGGINGIn exercise of powers vested under Section

19 of the Act, the Commission may inquire into any alleged contravention under subsection (3) of Section 3 of the Act that proscribes bid rigging. The Commission, on being satisfied that there exists a prima facie case of bid rigging, shall direct the director general to cause an investigation and furnish a report.

INQUIRY INTO BID RIGGING CONTD

The Commission has the powers vested in a Civil Court under the Code of Civil Procedure in respect of matters like summoning or enforcing attendance of any person and examining him on oath, requiring discovery and production of documents and receiving evidence on affidavit. The director general, for the purpose of carrying out investigation, is also vested with powers of civil court besides powers to conduct ‘search and seizure’.

MARKET STRUCTURE AND REPORTED COMPETITION ISSUES

Market structure of public procurement in India is heavily dependent upon procurement by the Central Government and State Government ministries, their departments and all statutory or public authorities. Given the volume and quantum of their summed up procurement capacity, the market structure of public procurement is of a very big magnitude and has competitive impact on the overall market of goods and services procured.

MARKET STRUCTURE AND REPORTED COMPETITION ISSUES CONTD Public Procurement in India is in its majority

done by Public Sector Enterprises. These PSEs have been said to be the victims of domestic and international cartels, which often reflects monopolistic behaviour of the suppliers in the market who co-ordinate the production to maintain high level of prices. In the past, such behaviour has been noticed in sectors like Fertilisers, Sugar, Wheat, Pulses, and Construction Material etc.

COMPETITION ISSUES The constitutional mandate with respect to Article

299 and Article 14 has requires the executive to follow equality clause while granting contracts.

Nagar Nigam, Meerut v. Al Faheem Meat Exports Pvt. Ltd & Ors

The award of Government contracts through public-auction/public tender is to ensure transparency in the public procurement, to maximise economy and efficiency in Government procurement,

COMPETITION ISSUES CONTD....

to promote healthy competition among the tenderers, to provide for fair and equitable treatment of all tenderers, and to eliminate irregularities, interference and corrupt practices by the authorities concerned. This is required by Article 14 of the Constitution.

PRINCIPLES DEVELOPED BY THE SUPREME COURT ON PROCUREMENT BY PUBLIC AUTHORITIES Government organizations are not allowed to work

in secrecy in dealing with contracts, barring rare exceptions.

Reasons for administrative decisions must be recorded, based on facts or opinions of knowledgeable persons again based on facts.

Adequate publicity is essential. Officers engaged in public procurement have to

perform fiduciary duty. There has to be fair play in the actions for

procurement.

CASES:

Raunaq International Limited v. I.V.R. Construction Ltd. & Ors.

G.J. Fernandez v. State of Karnataka

The Commonwealth Games 2010

The Monopoly Cotton Procurement Scheme

CONCLUSION It is worthwhile to point out that public

authorities might be required at times to act in a way which appears to be anticompetitive but for reasons of governance. Example may be taken from PSEs or Government Companies, such companies or enterprises may enter into long term exclusive agreements denying market access to a number of enterprises, it may also be found that price of procurement is often higher than price in a competitive market.

CONCLUSION CONTD....

As part of the conclusion, after analysing the entire gamut of procurement and studying the framework of Competition Act, 2002 and other relevant legislations pertaining to public procurement in India, it may be stated that the Competition Act, 2002 does not give a mandamus type of remedial authority to the Competition Commission of India. Thus at the most Competition Commission can go for vigorous advocacy and convince States or Central Government to review the legislations causing anticompetitive impact on the market. The following might be very effective part of competition advocacy in public procurement cases as well:

CONCLUSION CONTD....

persuading public authorities not to adopt unnecessarily anticompetitive measures and help them to clearly delineate the boundaries of economic regulation.

increasing awareness about the benefits of competition, and of the role of competition law and policy in promoting and protecting welfare, enhancing competition among PSEs, Government Companies, and Departments.

wherever possible, competition awareness must reach among economic agents, public authorities, the judicial system and the public at large.