Nasscom mumbai workshop

Rama Vedashree

[email protected]

e-Governance Initiative Update

October 4th, 2010

eGov & IT Services Procurement Issues,

Challenges, Preliminary Recommendations

a NASSCOM Study

26-Oct-10

Methodology

• Discuss with cross section of Industry and obtain feedback, on all phases of eGov Projects Life Cycle

o Large / SME System Integrators both incumbents and aspirants

o OEMs

o Consultancy Organizations (Both Technology/eGov and Infrastructure Advisory)

• Discuss with cross section of State & Central Government

o Central Government – Cross Section of Mission Mode Project Teams

o State Government IT Departments and Nodal Agencies

o Ex - IT Secretaries

• Study Best practices from Infrastructure Sector

• Study International practices

Questionnaire for IT Services Companies

Points for Discussion for TN Government

West Bengal Response

Points for Discussion for Mr J Satyanarayana

GOVERNMENT PERSPECTIVE

Feedback to Industry

• eGov and Functional/Domain Expertise very low – Consultants & SIs

• Delivery Resources Assigned to eGov projects, is not satisfactory

• Low, unviable commercial bids being submitted by Vendors

o Entry Strategy

o Low Price Bids without estimating complete scope

o “Throwing Due Diligence and Project Estimation to Winds”

• “Industry should change its focus from product orientation to citizen

service delivery in e-Governance projects. The industry is still oriented

towards supply of goods and services, the service orientation which is

the core of all e-Governance services is lacking”

Capacity within Government

• Government officers not tuned to core technology issues related to

e-Gov Projects

• Expertise in devising Service Level Agreements and issues related

to Contract Management for IT Projects

• Two solutions

o Bolster capacity within Government by training , recruiting staff

• Some states have established dedicated empowered

organization for implementation of E-Gov Projects

o Establish a specialist service for handling e-Gov Projects & IT

Function

• Capacity can be supplemented by officers of Public Works and

Finance Departments (for Contracting Phase)

• Need for Government to develop overall capacity of Government

employees in managing IT

Project Conceptualization and Development

• Need for Financial modeling / risk assessment of e-

Governance Projects – Specially PPP

• Need to identify policy changes to ensure

implementation of e-Gov projects and Electronic

Service Delivery

• Framework for IIIrd party audit, and Impact

Assessment

• Calculation of current cost of delivering service in

manual mode

o Cost Estimation Practices of PWD

• E-Gov projects should have realistic achievable

SLA’s, with corresponding penalties

INDUSTRY PERSPECTIVE

Discussions with Industry

Response

SI's Large

Incumbents &

Aspirants Cross

Section

TCS, Wipro, 3i Infotech, NIIT, Mastek,

Mindtree, L & T, HCL Technologies

Infosys (Only eBiz feedback)

SI's SME Ram Info, COMAT, ABM , Radiant, UTL, CMS,

Zylog, Humanitics)

Consultancy PwC, E & Y, IL&FS, NISG, IDFC (for

Infrastructure Best practices)

OEM Microsoft

Total 23

• Discussion through Face to Face as well as Telephonic Interviews

• Several SIs Provided Formal Written Feedback

Summary of Industry Responses

• The Respondents, provided a total of 277 issues which were

distilled to 170 unique issues related to Procurement of IT Services

• These issues were grouped into 19 Categories of issues - Project

Conceptualization, Scope of Work, Project Execution .. For a

complete list, click here

• Maximum Issues & Challenges

1. Project Execution

2. Project Conceptualization & SOW

3. Contract, T&C

Issues of Industry – A Summary

S No. Issue OEM

( 1)

Incumbent

Large

( 3)

Incumbent

SME

( 8)

Aspirant

Large

(6)

Consultant

(5)

Total

No. of

Respon

ses

Total No.

of Unique

Issues

1 Project Execution 0 8 29 12 8 57 32

2 Project

Conceptualization

and Development

1 5 16 14 4 40 26

3 Contract ( Terms

and Conditions

Document)

0 20 3 12 3 38 24

4 Pre Qualification 2 2 18 15 1 38 12

5 Tender Evaluation 1 8 3 11 2 25 16

6 Scope of Work 2 4 8 7 0 21 15

7 Other Issues ( 13

broad types of

issues)

0 15 17 19 7 58 45

6 62 94 90 25 277 170

Issues Related to Project Execution

Timely Payment

• Lack of timely payment despite fulfillment of the deliverables of the

Vendor, and Acceptance of Deliverables

• Lack of Continuity of Project Champion

• Delays in deliverables from Government

• Investments made by the Vendor remaining idle and not paid for

• The RFP may have a service level for procurement of goods

by a certain date, however Site, provisioning of power supply

may not be ready

• Equipment of the Vendor will need to be stored in a

Wearhouse

• Budgetary Sanctions/Transfer to Line Department

• Delays in giving timely signoffs to Vendors both by TPA and

Department

Project Execution Issues ( Contd..)

• During Project Execution many issues come up which may not

have been anticipated in the RFP

• Department PMU not empowered to take appropriate

decisions, in the interest of project implementation

• Signoff's given by a Government Officer regarding a

project, are not respected by the successor. Many times

the successor likes to re-evaluate / review the certification

of work, and even SoW & Contract

• Lack of dedicated team within the Government Department for

Project Monitoring

Project Conceptualization Issues

• Projects incorporate many Non IT items as well, which increase

the Project Cost. This leads to an increase in prequalification

turnover norms, and also risk assessment of Vendors

• Acceptance criteria / specifications for such non IT work, is not well

defined

• By clubbing requirements and entrusting the Turnkey job to a Prime

SI, the Government does not take advantage of best of breed

solutions from specialized Vendors

• This issue has been highlighted by both Incumbent and Aspirant

Large IT Services companies

• Projects incorporate requirements like Lease Rental, Diesel for

running of Gensets

• Cost Estimation is guesswork, both on the extent of Grid

Power Outages, and cost of diesel over a 5 Year Tenure.

Indexing such input costs to a base price and factoring

escalation is missing

Scope of Work, Specifications

• There are many activities that only the Government Department can

accomplish, but even these are given as scope of work of the

Vendor . Some Examples:

o Obtaining space from another Government Agency, access to

the database/systems of another Government Department

o Consent from participating departments to come on board an

integrated services project, and enable integration to backends

o No Counter Guarantees built into the SLAs for default by

Govt and Govt Agencies

Payment Model / Business Model

• The Payment terms in Government Projects discourage growing the

ecosystem of service providers

o Payments in many cases are not milestone based, and even when

milestone based, the Payments are skewed towards the end (telescopic)

• The payment for the early milestones does not cover the complete cost of

production – Cash Flow Challenges for SMEs

• Many Projects increase the amount of investment, expenses of the Vendor

by asking for heavy bank guarantees

o In IT infrastructure projects with deferred (QGR) payment model, the

investment by the Vendor in IT equipment, is not factored in Security

against default

• Escrow mechanism not being adopted in most Projects

Pre Qualification

• Framing of prequalification norms is a pain point specially for

Incumbent SME and Aspirant large organizations

• Redundant pre-qualification criteria like CMMI Level 5 for consultants or

CMMi certification not relevant to projects

• Pre Qualification criteria favours incumbents who have experience only in

Government Sector

• No Level Playing field for firms, that have good credentials in other

sectors, and now want to participate in Government Projects

• Similar experience from non government sector in India (Telcos/Banks),

not given due weightage

• Relevant global experience in International Government Sector projects

or relevant international private sector projects, not given weightage

• In consistency in Pre-Qualification Criteria across similar types of

projects, or almost the same project across states

• Some projects pre-qualification criteria require net worth, in some

profitability, in some case 3 or 5 years past revenues. Lack of

standardized criteria tends to impact ‘Level Playing Field’

Contract (T&C/ MSA Document)

• Contracts have unlimited liability terms with no Caps linked to Contract Value

and Payments to Date

• Contracts one sided and no counter SLAs on Govt Deliverables – Risk

Overload for Vendors

• Liquidated Damages for Delays is disproportional to the Contract Value,

Payments to Date

• eGov Contracts donot incorporate accepted best practices from World Bank Standard

Bidding Documents, tender documents of well managed PSUs

• Termination for convenience by the Customer

o Where Vendor has made investments, termination for convenience is an unfair

practice

o Exit management clauses donot adequately compensate the Vendor for

investments

Dispute Resolution

• Arbitration Clause - Arbitrators to be mutually decided as per Indian Arbitration Act.

• Arbitrator should not be a Officer of the same Line Department

• Arbitrator should be a neutral person like a retired judge/civil servant

• The judgment of the arbitrator should be binding on both the parties

• Many times, the same type of dispute with two different companies, is resolved in

different ways

Tender Evaluation

• Communication of scores to bidders, on the technical selection criteria

not followed – reinforces misperceptions of Transparency

• Evaluation Criteria, not in line with Industry Staffing & Resourcing

practices

• Bid Process expects Vendor to give names of employees that

will be assigned to the Project. Given the Time Lag in

Evaluation, Bid Award, Contract & Project Kick-Off, this is not

practically feasible

• "Available tender capacity" not considered while evaluating bidders,

leading to some vendors being over leveraged

• Significant difference between L1 and L2, Predatory pricing by

some bidders. Floor Price Estimation is not adopted

• Multiple Bid Validity Extensions are unreasonable

PPP Projects

• Most PPP projects are first of a kind project and it is difficult to anticipate

transaction volumes. Further they are dependent on a number of upstream

activities like computerization of Government Departments

• Given the risk of these projects, there should be some risk mitigation

measures, counter guarantees to reduce the investment risk of the

bidders

• In PPP projects, SPV between the Government and winning bidder not being

encouraged

• In PPP Projects, Service Fee to Vendors not allowed to be deducted at source

• Risks in PPP projects due to wide variance in estimate of likely services and

volumes to be delivered through the Project.

• Service cost is dependent on the numerator ( Anticipated investment which has

a fixed and variable component ) and denominator ( Anticipated number of

services, Expected Transaction Volumes) – Under/Overestimation Risks

• PPP Project not designed in a manner to enable re-negotiation in both

cases of excessive profitability or losses to vendor, compared to

Infrastructure Sector

Broad issues related to e-Gov Procurement

1. Project Conceptualization and Development

2. Payment Model / Business Model

3. Scope of Work

4. Misprocurement

5. Tender publication

6. Bidding terms and conditions

7. Contract ( Terms and Conditions Document)

8. Pre Qualification

9. Pre-Bid meetings / Pre- Bid Clarifications

10. Tender Submission

11. Tender Evaluation

12. Post Tender Process

13. Third Party Audit

14. Project Execution

15. Post Implementation

16. PPP Projects

17. Consultant Issues

18. Dispute Resolution

19. Other Issues Go Back to Summary of Responses Slide

Preliminary Recommendations

• Rationalize Eligibility Criteria Norms across different category, size of

eGov Projects – Enable level playing field

• Model RFPs, Contracts, MSA for different Category of Projects

o To be prepared by a joint Government-Industry Team (include Reps

from Banking Sector, NISG, Consultants)

o Review by a Panel including DIT, Department of Expenditure, MoF

o Customize these for state projects, and drive uniformity

o SLAs should incorporate SLA and events of default for both Vendor

& Govt/Govt Agencies

o Incorporate Best practices of Model Documents Published by

Planning Commission for Infrastructure Sector PPP

o Toolkits for PPP, BOOT Projects and Business Model options to

guide departments

226-Oct-10

Preliminary Recommendations

• Similar to Process followed for Pre-Bid Meetings, standardize on Suppliers

debriefing, post vendor selection

• Initiate a practice of sharing techno-commercial evaluation scores

• Project Governance Structure Publish a Model for different category of projects

• Resourcing & Skills Profile across Lifecycle stages

• Consult Enterprise CIOs, Industry and Banking PSUs

• Decide a Dispute Resolution & Arbitration Guidelines

• Panel of retired officers from Government and Academia, knowledgeable

with IT Projects Execution

• Alternative Dispute Resolution mechanism on lines of procurement

Ombudsman of Canada

• Centralized digital repository of all Information assets of Bids, Projects – on a

secure Govt Network

• RFPS, Pre-Bid Queries, Bid Amendments, Contracts, MSAs

• Project Reviews, Audit Reports, Impact Assessment Reports

• Vendor defaults/force majeure Situations

236-Oct-10

Industry Actionables

• eGov Functional/Domain Expertise

• eGov Orientation/Functional Skills Development Programs

• Project Estimation Rigor and Bid Review Process

• Do we need leadership attention ?

• CSC Bids have become a negative showcase for, NeGP,

Outsourcing, PPP

• Several states going through long drawn litigation or rebids

• Initiate Impact Assessment of Projects Executed

• Success Stories, Case Studies

• Learnings from Failed projects

246-Oct-10

Thank You