WORKSHOP ON ENFORCEMENT OF CONTRACT CLAUSES AND TIMELY RECOVERY By G. ASOK KUMAR, IAS CVO,AAI ETHICS IN PUBLIC PROCUREMENT JAIPUR 23.02.2012.

WORKSHOP ON ENFORCEMENT OF CONTRACT CLAUSES AND TIMELY

RECOVERY

By G. ASOK KUMAR, IAS

CVO,AAI

ETHICS IN PUBLIC PROCUREMENT

JAIPUR 23.02.2012

ETHICS

Is doing the RIGHT THING

Is the imbibed value system – may vary from

culture to culture, place to place, but there

are certain universally accepted values

Is what money cannot buy. Best when

internalised and comes from within.

Can be forced- but true ethics is doing the

right thing, even when not watched.

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GOOD ETHICS

Gets the trust of people

Is very important in public life

Carries the burden of the hopes of millions

of people, who expects the public servants

to perform their duties as a trustee

Makes everyones’ life pleasant

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PUBLIC PROCUREMENT ?

Any procurement made for public / by spending

public money is public procurement.

Procuring works, material, services etc., of the

SPECIFIED QUALITY within the SPECIFIED TIME and

at the MOST COMPETITIVE PRICES in a FAIR, JUST

and TRANSPARENT MANNER is essential in public

procurement.

CVC, therefore, maintains a high focus in this area.

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PUBLIC PROCUREMENT

Public procurement plays vital role in economy / growth

Appxmly. 30% of India’s GDP gets converted into public

procurement contracts.

Departments like Railways, Defence and Telecom use

50% of their funds for procurement of good and

services.

According to World Bank’s estimate, the average bribe

to obtain a public contract is 15% of contract value.

Budget expenditure of AAI during 2011-12 is Rs. 2100/-

Crores and for the year 2012-13 is Rs. 2450/- Crores.

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PILLARS OF VALUE OF PUBLIC PROCUREMENT

1. Public Trust: Is the faith the public has in governments that are

created to protect their basic freedoms.

Each citizen has an expectation that government, and each member of

the government, will discharge their duties in a competent manner and

not abuse authority granted to them. Not only does the citizen pay for

these services, but they have relinquished some of their individual rights

and freedoms to ensure that the government has the ability to look after

their well-being. An abuse of authority always is a betrayal of the public

trust and is not tolerated in a democratic society. Thus, public

procurement operations are subject to intense public scrutiny.

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PILLARS OF VALUE OF PUBLIC PROCUREMENT

2. Public Service: Government organizations offer varied

services and serve a number of people, a common concern is the

need to make the best use of available financial and human

resources. To do this, public employees serve a unique role in

society.

Employees must use their authority without bias.

As stewards of the public trust, and as servants to the public

welfare, procurement practitioners must consistently pursue

their professional standards even at the expense of their

personal beliefs.

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PILLARS OF VALUE OF PUBLIC PROCUREMENT

3. Justice: Justice is the quality of being just,

impartial and fair in how public procurement

professionals discharge their responsibilities.

Justice is best served when professionals exercise

judgment within established legal frameworks to

balance competing interests among all stakeholders

with the explicit intent to ensure that decisions and

actions are proper, fair & appropriate.

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PUBLIC PROCUREMENT……

As procurement is prone to corrupt

practices, it has a many effects:

it distorts the market mechanism,

represents a high cost to the procurer

and

results in poor quality of goods and

services

Erodes public faith.

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ESSENTIALS FOR PUBLIC PROCUREMENT

Any sound procurement procedure should be based on principles of ethics, fairness, equity and transparency.

In brief, the canons of public procurement are:

Right Place – Need / scope Right material - Quality Right Time - Time Right Price - Value for money Right Vendor – Fairness & Transparency

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PREREQUISITES FOR PUBLIC PROCUREMENT

- Well documented Works / Purchase Manual with clear DoP (Delegation Of Powers)

- Regular updating of Manual for systematic and uniform approach

- Formulation of project proposal and establishing need and justification – Techno Economical Feasibility Studies (TEFS), Comprehensive Bid Analysis (CBA), Techno-Commercial Studies in terms of payback period, IRR, Discounted Cash flow (NPV) etc.

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PREREQUISITES FOR PUBLIC PROCUREMENT…

- VALUE ENGINEERING – Evaluation of all available alternatives.

- STRs (Specifications and Technical Requirements) – Broad based enough to encourage competition and at the same time specific to meet the actual intended use / purpose. Not customized and tailor made to suite select group of vendors that restricts competition.

- Designs to be optimized - avoid over provisioning.

- Realistic Estimates based on proper market survey.

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PREREQUISITES FOR PUBLIC PROCUREMENT…

- TIME IS THE ESSENCE - Timely Decision making.- Timely commissioning of cost

intensive equipment/facility- Timely rescission of contract on

account of delays / non performance

- Systemic Performance Appraisal of vendors/ contractor / consultants

- Accountability

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Investment in Airport Infrastructure

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S. No.

Sector10th Plan (In Rs. Crore)

11th Plan (In Rs. Crore)

12th Plan (In Rs. Crore)

1.Whole Airport Sector

6404 36,37150,000 Appx.

2. AAI 3534 12,964 17,500

CONTRACT CLAUSES?

Procurements/Projects undertaken by PSUs are governed by Manuals /Guidelines thus, resulting in signing of Contract Agreement with the executing agency / supplier.

Various Clauses stipulated in the Agreement are essence of the Contract.

The elements of the contract are mutual assent and consideration.

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Contd..

Adherence to the Contract clauses in terms

of specifications / making payments etc. as

per agreement are essential for effective

Contract Management.

Non adherence to the Contract Clauses

gives rise to undue benefits to the

executing agency causing losses to the

organization and defeats the very purpose

of stipulations.

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AREAS OF CONCERN /VIGILANCE ISSUES

Change in scope of work after

award of contract.

Accepting revision in specification /

payment conditions after award of

work.

Allowing extra items at inflated

rates.

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Contd…

Permitting alternative makes without

adequate cost adjustments.

Acceptance of substandard work .

Delay in completion and commissioning

of various projects (Cost overrun / Time

overrun). Sometimes doubting the

need / purpose of procurement.

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CVC / CTEO GUIDELINES19

All public procurements are subject to the compliance of CVC’s / CTEO’s circulars / instructions.

Circulars / instructions issued by AAI are also to be followed meticulously for effective Contract Management: CVC circulars/orders – (http://cvc.gov.in/cvc_instruct.htm)

CTEO’s circulars/orders– (http://cvc.nic.in/CompcirculCTE.pdf)

AAI Circulars – (

http://infosaarthee/Board Member/Planning/ TechInst/Pages/default.a

spx

). So far 86 TI’s issued. It is better to update the Works

Manual.

CTEO’S OBSERVATIONS

In one work the Board’s approval for

Architect Fee was to be fixed at 5% of the

estimated cost or the awarded cost,

whichever is lower. However, at the time of

framing the agreement, the fee was changed

to 5% of the actual cost of the work or the

awarded cost, whichever is lower. This

revision caused increase in consultancy fee

by approximately Rs. 24 crores, giving undue

benefit to the architectural consultant.

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CTEO’S OBSERVATIONS ….

A large area of land in the airport

premises was allotted at a nominal cost

to the contractor for establishing

stockyard, which was against the

clarification issued at pre-tender stage

of the work. Undue benefit accrued to

contractor on this account was of the

order of Rs.10 crore.

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CTEO’S OBSERVATIONS ….

Completion Certificates recorded without

ensuring the completion of all the packages of

composite tenders.

Higher rates paid to the Contractor compared

to the rates admissible as per contract

provisions for substituted items.

Measurement for steel was made in excess of

actually used and no provision made in the

contract for the ownership of scrap.

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Observations-CTE Type

Scope of work and design of the

structures changed during execution.

Escalation payments are released by Site

engineers as per agreement clauses

timely, but when it comes to recovery

against de-escalation, action is being

taken only after vigilance observation or

at the time of final payment.

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Observations-CTE Type…

Escalation payment made in contravention

to agreement clause.

The lead partner of the JV Consortium is

absent in the site activities and the other

in- experienced partner is executing the

work, thereby, causing delay.

EOT cases not processed in time. Penalties

not levied as per agreement provisions.

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POINTS TO PONDER25

What should be the appropriate safeguard against the

failure of the consultant/contractor?

How to make tender document unambiguous?

How to bring uniformity in dealing with the ambiguous

provisions in the tender ?

How to ensure timely completion and commissioning of

the projects and procurement ?

What should be the effective monitoring tool for project

management?

How to enhance co-ordination amongst various

Departments of AAI / Airports for effective management

of contracts.

SOME SUGGESTIONS !

Specific penalty clause may be

incorporated in the Consultancy

Agreement to avoid poor planning / lack

of supervision and to increase

accountability of Consultant.

The ambiguous clauses, if any, need to be

referred to NIT approving Authority only

for necessary clarification / decision.

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SOME SUGGESTIONS…

Realistic time frame for execution of the

project to be considered based on specific site /

soil factors prior to accord of AA & ES.

The AA & ES Authority need to freeze maximum

permissible time frame for the Project.

A separate penalty clause for delay in

execution of the Project need to be specified in

the Agreement to avoid time and cost overrun.

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Contd..

There should be no major deviation in scope of work after award of work.

The E & M equipments shall be brought to site in synchronization with the Civil / Electrical works to avoid possible damages/lapse of warranty / Guarantee etc..

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Contd..

All records / files to be preserved meticulously.

Hindrances need to be recorded properly to enable scrutiny during sanction of EOT.

OPMS need to be operationalized for effective monitoring of the projects.

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GENERAL GUIDANCEcheck points during

execution stage

Conditions regarding Insurance Policies,

P.G., Labour licence etc. complied with.

Bank Guarantees are duly verified

Recoveries are made as per Contract.

Major Deviations should not be done.

Mandatory Tests are carried out.

Proper record of hindrances maintained.

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AREAS TO BE COVERED IN THE WORKSHOP

Time & Cost Overrun in Projects – Causes and solutions by ED(Engg.)

Irregularities in Engineering works by GM(Vigilance)

Finance control in Project management by ED(Fin.)

Implementation of Contract clauses by RED(NR))

Panel discussion.

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CONCLUSION

We must adopt vigilance as an

attitude and do not view it as

restrictive and punitive.

We must learn to integrate

vigilance in our day to day

working.

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THANK [email protected]

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