The Complex World of Government Procurement
A Conducive, Win-Win Contractual Approach Key for Digital India Mission to Succeed
Public sector projects in India often lend credence to the message, “damned if you bid, damned if you don’t”. Those brave enough to stick their neck out run the risk of losing money and those who stay clear may end up being blacklisted by government agencies.
Contractual Conditions: Infosys founder N.R. Narayana Murthy minced no words during an interview with CNN-IBN last week when he said “for the Digital India drive to succeed the government must revise its contractual conditions and make them aligned with global practices.”
Technology companies would not like to end up losing money by undertaking government projects because of the stringent penalties, he argued. The practice of changing requirements midstream will also need to be reviewed, he emphasised.
That by itself can contribute to delays in project execution, increase costs and apply pressure on the successful bidder.
One-Sided, Skewed Towards Buyer: Having spent the last nearly two decades in the technology sector and writing thought leadership pieces, I have often wondered why government procurement policies should be so heavily skewed towards the buyer!
In fact, my MBA project report was on “the Complex World of Government Procurement.” I chose that as the subject for my project because my hands-on experience on public sector bids made me aware of how complex and challenging government opportunities were.
There is little doubt that the concerns raised by Mr Narayana Murthy are legitimate. I am convinced that without a major transformation in their procurement policies India will struggle to fulfil their digital vision, embracing vendors who commit to everything under the sun and then wrestle with the challenge of delivering the project on schedule without losing money. A lose-lose crisis will have been least on the minds of both the buyer and the seller.
Almost always Governments ask for 100% compliance and adopt a lowest-bidder-wins strategy. In other words, they pursue the best-available solution at the lowest price possible!
Then there are big bid bonds, performance guarantees, liquidated damages / liabilities and indemnities as well as local pull/push factors to contend with.
- Lowest-Bidder-Wins policy: Common categorisation includes L1, L2 and L3 – the top three bidders with the lowest prices.
- 100% compliance: Seeking a 100%-compliant solution at the lowest price is hardly a reasonable expectation or a commercially viable proposition.
- Uncapped Liquidated Damages / Indemnities: These are so stringent that in a worst-case scenario with a contractual breach, the winning bidder may end up paying a few times more than the total cost of the project.
- Corruption: Bidders vying for a stake in government projects may have to deal with this phenomenon.
Governments may have some justification in building some of these mandatory conditions into the RFPs (Request for Proposals) given the kind of consolidation, through mergers and acquisitions, we see in the industry on a regular basis.
Yet, without a win-win situation it is not a conducive bidding process for technology vendors spending big on R&D to develop next-generation solutions.
Earlier this month, while launching the Digital India Week, Prime Minister Narendra Modi placed accent on his vision for the country and what it takes for it to become a fully connected one.
These pillars with a little more detail are:
- Broadband Highways – Laying of a national optical fibre network
- Mobile connectivity for all villages by 2018
- Pervasive public Internet access
- e-Governance, through business process re-engineering
- e-Kranti – electronic delivery of services across all sectors
- Global Information – online hosting of data and proactive engagement through social media and web-based platforms like MyGov
- Electronics Manufacturing – Set-top boxes, VSAT, medical electronics, smart energy meters, smart cards and micro ATMs are among products receiving particular focus.
- IT Training for Jobs – one crore students from small towns and villages for IT sector
- Early Harvest Programmes – Aadhaar-enabled Biometric Attendance System in all central government offices in Delhi. Aadhaar card is an Indian version of the IC (Identification Card)
This is happening alongside India’s plans to build 100 smart cities that I had talked about in an earlier post in LinkedIn.
Good intentions will remain just that if it is not backed up by business-friendly initiatives without believing that every company with a presence in India, whether local or multinational, is duty-bound to help it succeed even if it meant losing money.
If the government’s tender policies remain as one-sided as always, fulfilment of the mission could hit roadblocks.
Contractual stringencies are not exclusive to India. We see that in almost all emerging economies as well as in some of the developed markets. It is just that in India it is a little too rigid.
Skill India movement: Some of Mr Modi’s other initiatives, such as the Skill India movement and the Make-in-India drive, have won the government widespread praise, including from Mr Narayana Murthy.
They all need to go beyond hype and hyperbole and, along the way, if the purchase strategies are made a little friendlier business will welcome that and contribute their might to nation-building without fear of getting bogged down by loss-making projects.
While progressive governments are beginning to show a readiness to balance expectations with ground realities, businesses have to be fully prepared to take the challenge head on.
Periodically, heads of government procurement agencies hold conferences to identify ways to improve their practices, strengthen competencies and deliver sustainable development. They review ways to buy smart (e-procurement) and fight corruption in the public sector.
The right initiatives are being made and hopefully more will be done to make doing business with governments more attractive, not stifling, for solution/service providers.
G Joslin Vethakumar