Page 205 - ES 2020-21_Volume-1-2 [28-01-21]

188 Economic Survey 2020-21 Volume 1

(b) Discretion is not provided or exercised even when there is a case to do so
6.18 Since regulations are defined, they are easy to measure ex-ante. Bureaucracies will naturally
tend to substitute supervision with mechanical regulations and will not exercise discretion even
when it is available.

6.19 As an illustration, take the case of public procurement. As per the General Financial Rules
(GFRs) guidelines, the Lowest Cost Method, or commonly known as ‘L1’ principle is the most
prevalent bidding method used for Goods/Works and Non-Consultancy services.
6.20 There is a general agreement that solely relying on L1 does not work well and various
organisations have advocated the need for reforming the current procurement system over the
last few years. Central Vigilance Commission in its concept note ‘Alternative Procurement
Strategy for Award of Works and Goods Contract’ noted that although L1 may still hold good
for procurement of routine works, goods and non-consulting services; but not for high impact
and technologically complex procurements. Quality Council of India (QCI) conducted a study
6
on highway development sector and found that the vendors who were all awarded contracts
on the basis of competitive bidding vary widely in terms of quality of work and performance
which was not covered under existing bid evaluation system. The report suggested incorporating
Performance Rating in Competitive Bidding to provide a quality premium to superior bidder
rather than simply awarding the contract to L1 bidder and gave a formula to calculate total score
as the summation of financial score and performance rating score. NITI Aayog in the concept
paper ‘Indian Public Procurement: Alternative Strategies and Way Forward’ argue that L1 is not
suitable in all the scenarios and came up with a variety of alternatives to use in the procurement
process. In fact, the report also mentions that new procurement frameworks of multilaterals like
World Bank, Asian Development Bank, Japan International Cooperation Agency have suitable
alternative strategies for selecting bidders pointing towards needs for change and reforms
in current times. They have moved from ‘one size fits all’ to ‘fit to purpose’ approach and
incorporated various alternatives such as Value for Money, Rated Criteria to consider non-price
attributes etc in the procurement methods.

6.21 Despite so many organizations recommending a need for allowing more discretion in the
bidding process on account of technical and quality based parameters, we still mostly use L1.
The L1 system persists because of the regulatory default problem. No decision maker wants
to exercise discretion for the fear of future questioning. This criteria may appear simple and
quantifiable, however, in a complex world where it may not be possible to define everything in the
pre-procurement process, it is advisable to leave some discretion in the hands of administrators
along with maintaining enough transparency and active supervision.

(c) Discretion is questioned with the benefit of hindsight
6.22 Discretion exercised ex-ante in the Initial Public Offering (IPO) of publicly listed
companies often gets questioned with the benefit of hindsight when the IPO is oversubscribed
and/or the first day gain is large. However, the market value of an unlisted entity is unknown.
Even after employing the best of valuation techniques, effort, and resources, the actual value
of an entity is uncertain until it is traded in the market. It is not uncommon to see stocks being

6 QCI conducted a pilot study as a part of World Bank Technical Assessment with Ministry of Road Transport &
Highways (MoRTH) to rate National Highway projects