A REPORT

ON

“E-PROCREMENT IN PSUs”

By

RINKY MALHOTRA

PGDM-SEM-2 ND

At

NTPC LIMITED

1
 A REPORT

ON

“E-PROCUREMENT IN PSUs”

By

RINKY MALHOTRA

PGDM-SEM-2ND

At

NTPC LIMITED

Date of Submission:

2
 AUTHORIZATION

This summer project report titled “E-PROCUREMENT IN PSUs” is

submitted in partial fulfillment of the requirement of PGDM program of

GLOBAL INSTITUTE OF MANAGEMENT AND TECHNOLOGY. The

Summer Internship Program is an attempt to bridge the gap in student’s

perception between the academic institution and the corporate world. The course

curriculum is so designed that the students get enough practical knowledge of

business world which helps them to explore their skills in the corporate world in

future. It will also help to develop skills to analyze and interpret problems,

through application of concepts and techniques of management.

3
 ACKNOWLEDGEMENT

These eight weeks at National Thermal Power

Corporation (NTPC) have been a great learning
experience. It has been one of the most enriching
experiences for me to work along with the
employees of one of the best managed
organizations, a company rightly considered as
one of the Navratna’s in the public sector of the
country.
I consider it a great privilege to express through
the pages of this report, a few words of gratitude
and respect to those who guided and inspired me
in completion of this project. I am deeply obliged
to Mr. A.A.Sheikh(AGM Fin) for giving me the
opportunity to undertake the project in his
esteemed organization. I would also like to thank
my Company Guide, Mr.P.K.Goel(DGM
Finance), who encouraged and gave me ample
support to do this project. I thank him for taking
out his precious time, showing keen interest and
giving valuable guidance at every stage of the
project.
Later on, I would like to confer the flower of
acknowledgement to my Faculty Guide,
Ms.Manika Mathur for her kind support and
guidance to complete the project.
Rest all the staff of different departments of
NTPC, who helped me, are not only a matter of

4
acknowledgement, but are also authorized to
share my success.

TABLE OF CONTENTS

Authorization…………………………………………………………………. 3
Acknowledgement…………………………………………………………...... 4
Executive Summary…………………………………………………………... 6
List of Illustrations………………………………………………………….… 7

1. Introduction- Purpose and Scope………………………………………….8

2. Research Methodology……………………………………………………11

3. About the company………………………………………………………..12

4. Main Text………………………………………………………………….24

4.1 Types of Tenders………………………………………………………….25

4.2 Process of Procurement…………………………………………………..28

4.3 Contents of Bidding Documents…………………………………………37

4.4 E-Procurement……………………………………………………………47

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5. Limitations of the study…………………………………………………...54

6. Suggestions and Recommendations……………………………………...55

7. Annexture-1,2,3……………………………………………………………56

8. Case Study on E-Procurement in Government of Andhra Pradesh, India

9. Learning’s from the Project……………………………………………...73

10. Conclusion…………………………………………………………………74

11. References…………………………………………………………………75

EXECUTIVE SUMMARY

The project report entitled as “E-procurement in PSUs” is aimed at optimizing

the process of procurement followed in most of the public sector units, with the
main emphasis on the bidding process followed in NTPC Limited, so as to make
available the needed equipments, material and services in the right quality and
quantity, at the right time and at the right place. Materials and equipments
constitute a very significant proportion of total cost of power produced by
NTPC. It is estimated that about 40% to 70 % of total production cost is related
to material and equipments only. So, control over such costs is very essential for
the organization. This is done by breaking down the total project work for a
power plant into various smaller well defined packages. Then, NTPC invites
sealed bids from various eligible bidders for these packages. These sealed bids
are opened at the time indicated in the invitation to tender, in the presence of
representatives of the bidders, if they present themselves and a representative of
Finance. The bidder, which satisfies all the qualifying requirements, and offers

6
the lowest cost, is awarded the contract. A tender Committee is formed to decide
on the award of contract valuing 2 lacs and above. The members of the Tender
Committee at appropriate level shall consist of representatives from Indenting,
procurement/Contracts and Finance department. The company utilizes its
External Commercial Borrowings(ECB) in the form of loans and advances or its
own resources for procuring different plant equipment packages from these
bidders.

LIST OF ILLUSTRATIONS

1. NTPC’s Installed Capacity and Generation……………………………. 12

2. NTPC vs. Rest of India…………………………………...…………….... 12

3. NTPC Power Plants……………………………………………………… 13

4. List of Joint Ventures……………………………………………………. 18

5. Future Capacity Additions…………………………………………….. 21

6. Types of Tenders……………………………………………………….. 23

7. Process of Procurement………………………………………………… 26

7
8. Process of E-Procurement……………………………………………… 46

1. INTRODUCTION-PURPOSE AND SCOPE

The project is aimed to study and understand the process of procurement used

for procuring different plant equipment packages, from various bidders. The

objective is to optimize the process of procurement so as to make available, the

needed equipment, material and services in the right quality and quantity, at the

right time and at the right place after giving fair and equal chance to tenderers,

so as to obtain minimum possible price for every procurement/works.

Procurement at NTPC is initiated on the basis of approved indents/requisitions

and indicating budget and project estimate provisions. The contract

services/materials management services receive the requisition/indent for the

procurement of materials/equipment/services, duly approved by the competent

authority and then plan and organize the procurement action.

NTPC invites sealed bids from various eligible bidders for supply and

installation of various packages needed for its various power plants. These

sealed bids are opened at the time indicated in the invitation to tender, in

presence of representatives of the tenderers, if they present themselves and a

8
representative of Finance. The bidder, which satisfies all the qualifying

requirements, and offers the lowest cost, is awarded the contract. NTPC Limited

intends to finance the package through External Commercial Borrowings

(ECB), internal and other sources.

The manual procedure followed for the procurement of large value capital goods

is very costly and time consuming. It takes about 6-12 months for the final

approval and award of contract, after the detailed evaluation of the bid. The time

and money lost in filling the tender and submission of the bids can be saved to a

great extent, if manual procedure is replaced with electronic procedure.

Therefore, this report attempts to optimize the procurement process by adopting

E-PROCREMENT MODEL.

E-Procurement is the business to business (B2B) purchasing of goods and

services through the Internet. E-Procurement can be implemented through either

a manual process or using automated software such as Enterprise Resource

Planning (ERP) tools. Without a regular and reliable supply of raw materials and

needed equipments the manufacturing process will come grinding to a halt,

leading inevitably to missed delivery dates and a backlog of orders. It is vital,

then, to ensure that the process of procurement is as efficient and reliable as

possible. E-procurement can be an invaluable tool for enterprises experiencing

difficulties in their supply chain. If purchase orders are not being processed in a

timely fashion and delivery dates are not being met through manual purchasing

methods, e-Procurement can be extremely useful in streamlining the

9
procurement process. In a Nutshell, E-procurement offers two main advantages.

The first is the further automation of business processes related to the

production of goods and services. By automating procurement orders an

enterprise can ensure that orders are placed in time to align with the

recommended production schedules of ERP applications.

Furthermore, e-procurement can also be a valuable tool in sourcing new

suppliers of goods and services, driving down materials expenditure by

promoting competitive bidding. E-procurement is very important to achieve e-

governance and for applicability of uniform procurement process to all units. It

has the ability to reduce procurement cost by reduction in lead time, reduction in

transaction cost and cycle times etc. E-procurement also helps in building

collaborative relationship with suppliers. It enables greater transparency;

implements best practices, and increases the vendor base. It also reduces the

possibility of cartel formation and generates reasonable competition. It helps to

achieve savings in administrative and process cost. E-procurement enhances the

security and it is also a step towards ERP systems for the organization.

10
2. RESEARCH METHODOLOGY

The methodology adopted for the present study was discussion with company

guide, experts and doing daily practical work of the organization. The existing

procedure followed by NTPC Limited for the procurement of needed

equipments for setting up the power plants was thoroughly studied. The main

focus was to gain knowledge and experience during the training period that will

help understand the whole E-process of procurement management and in

making improvements in the existing system.

 Data Collection-sources and methods

Primary data: Primary data has been collected by the following methods:

 Personal Interaction with Company Guide.

 Discussion with experts.

 Group Discussion.

Secondary data: Secondary data has been collected by the following methods:

 Tender Evaluation reports/Previous Bids

 Data bank maintained by Cost Engineering Department.

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3. ABOUT THE COMPANY

N
TPC Limited (Formerly National Thermal Power Corporation) is

the largest power generation company in India. Forbes Global

2000 for 2008 ranked it 411th in the world. It is an Indian public

sector company listed on the Bombay Stock Exchange, although at present the

Government of India holds 89.5% of its equity. It was founded on November 7,

1975.

VISION

"A world class integrated power major, powering India’s growth, with

increasing global presence."

MISSION

“Develop and provide reliable power, related products and services at

competitive prices, integrating multiple energy sources with innovative and eco-

friendly technologies and contribute to society.”

CORE VALUES:BCOMIT

12
♦ Business Ethics

♦ Customer Focus

♦ Organizational & Professional Pride

♦ Mutual Respect & Trust

♦ Innovation & Speed

♦ Total Quality for Excellence

NTPC's core business is engineering, construction and operation of power

generating plants and providing consultancy to power utilities in India and

abroad. Apart from power generation, which is the mainstay of the company,

NTPC has already ventured into consultancy, power trading, ash utilization and

coal mining. The total installed capacity of the company is 30,144 MW

(including JV’s), with 15 coal based and 7 gas based stations, located across the

country. Although the company has 19.1% of the total national capacity, it

contributes 28.5% of total power generation due to its focus on high efficiency.

The gross revenue of the company was Rs.400.113 billion, for the year 2007-08

and net profit was Rs.74.148 billion.

13
 Fig-1: NTPC’s Installed capacity & Generation

Fig-2: NTPC Vs Rest of India

From the above diagram, it can be observed that the NTPC has only 18.79% of
electricity generating capacity but it is supplying 28.60% of total electricity
being generated in the country. That means the company is utilizing its capacity
in a very efficient way.

14
Fig-3: NTPC POWER PLANTS

15
DIVERSIFIED GROWTH

NTPC’s quest for diversification started about a decade back with its foray into

Hydro Power. It has, since then, been moving towards becoming a highly

diversified company through backward, forward and lateral integration. The

company is well on its way to becoming ‘an Integrated Power Major’, having

entered Hydro Power, Coal Mining, Power Trading, Equipment Manufacturing

and Power Distribution. NTPC has made long strides in developing its Ash

Utilization business. In its pursuit of diversification, NTPC has also developed

strategic alliances and joint ventures with leading national and international

companies.

 Hydro Power: In order to give impetus to hydro power growth in the

country and to have a balanced portfolio of power generation, NTPC entered

hydro power business with the 800 MW Koldam hydro project in Himachal

Pradesh. Two more projects have also been taken up in Uttarakhand. A

wholly owned subsidiary, NTPC Hydro Ltd., is setting up hydro projects of

capacities up to 250 MW.

 Coal Mining: In a major backward integration move to create fuel security,

NTPC has ventured into coal mining business with an aim to meet about

20% of its coal requirement from its captive mines by 2017. The

Government of India has so far allotted 7 coal blocks to NTPC, including 2

16
 blocks to be developed through joint venture route. Coal Production is likely

to start in 2009-10.

 Power Trading: “NTPC Vidyut Vyapar Nigam Ltd.” (NVVN), a wholly

owned subsidiary was created for trading power leading to optimal

utilization of NTPC’s assets. It is the second largest power trading company

in the country. In order to facilitate power trading in the country, ‘National

Power Exchange Ltd.’, a JV between NTPC, NHPC, PFC and TCS has been

formed for operating a Power Exchange.

 Ash Business: NTPC has focused on the utilization of ash generated by its

power stations to convert the challenge of ash disposal into an opportunity.

Ash is being used as a raw material input for cement companies and brick

manufacturers. NVVN is engaged in the business of Fly Ash export and sale

to domestic customers. Joint ventures with cement companies are being

planned to set up cement grinding units in the vicinity of NTPC stations.

 Power Distribution: ‘NTPC Electric Supply Company Ltd.’ (NESCL), a

wholly owned subsidiary of NTPC, was set up for distribution of power.

NESCL is actively engaged in ‘Rajiv Gandhi Gramin Vidyutikaran Yojana’

programme for rural electrification and also working as 'Advisor cum

Consultant' for Ministry of Power for implementation of Accelerated Power

Development and Reforms Programme (APDRP) launched by Government

of India.

17
 Equipment Manufacturing: Enormous growth in power sector necessitates

augmentation of power equipment manufacturing capacity. NTPC has

formed JVs with BHEL and Bharat Forge Ltd. for power plant equipment

manufacturing. NTPC has also acquired stake in Transformers and

Electricals Kerala Ltd. (TELK) for manufacturing and repair of transformers.

SUBSIDIARIES

 NTPC Electric Supply Company Ltd. (NESCL): The company was

formed on August 21, 2002. It is a wholly owned subsidiary company of

NTPC with the objective of making a foray into the business of distribution

and supply of electrical energy, as a sequel to reforms initiated in the power

sector.

 NTPC Vidyut Vyapar Nigam Ltd. (NVVN): The company was formed on

November 1, 2002, as a wholly owned subsidiary company of NTPC. The

company’s objective is to undertake sale and purchase of electric power, to

effectively utilize installed capacity and thus enable reduction in the cost of

power.

 NTPC Hydro Ltd. (NHL): The company was formed on December 12,

2002, as a wholly owned subsidiary company of NTPC with an objective to

develop small and medium hydroelectric power projects of up to 250 MW.

 Pipavav Power Development Co. Ltd. (PPDCL): A memorandum of

understanding was signed between NTPC, Gujarat Power Corporation

Limited (GPCL) and Gujarat Electricity Board (GEB) in 2004 for

18
 development of a 1000 MW thermal power project at Pipavav in Gujarat by

forming a new joint venture company between NTPC and GPCL with 50:50

equity participation. Pursuant to the decision of Gujarat Government, NTPC

Ltd. has dissociated itself from this company. PPDCL is under winding up.

 Kanti Bijlee Utpadan Nigam Limited, (formerly known as Vaishali

Power Generating Company Limited): To take over Muzaffarpur Thermal

Power Station (2*110MW), a subsidiary company named ‘Vaishali Power

Generating Company Limited (VPGCL)’ was incorporated on September 6,

2006 with NTPC contributing 51% of equity and balance equity was

contributed by Bihar State Electricity Board. This company was formed to

renovate the existing unit and run the plant. The second unit has been

successfully re-synchronized on October 17, 2007 after 4 years of being

idle. The company was rechristened as ‘Kanti Bijlee Utpadan Nigam

Limited’ on April 10, 2008.

 Bharatiya Rail Bijlee Company Limited (BRBCL): A subsidiary of

NTPC under the name of ‘Bharatiya Rail Bijlee Company Limited’ was

incorporated on November 22, 2007 with 74:26 equity contribution from

NTPC and Ministry of Railways, Govt. of India respectively for setting up

of four units of 250 MW each of coal based power plant at Nabinagar, Bihar.

Investment approval of the project was accorded in January, 2008.

19
JOINT VENTURES

20
 08
NTPC
16.67%

NHPC
16.67%

PFC
16.66%

TCS
50%

To
opera
te a
Power
Excha
nge at
Natio
nal
level.

21
Fig-5: Future Capacity Additions

4. MAIN TEXT

P
rocurement is the acquisition of goods and services for the direct

benefit or use of the governments, corporations or individuals

generally via, but not limited to, a contract. A key question in

procurement is what to buy, given a limited budget. Procurement involves a

bidding process to purchase a given product or service. The project is aimed to ,

study and understand the process of tendering used for procuring different plant

equipment packages, from various bidders. Procurement at NTPC is initiated on

the basis of approved indents/requisitions indicating budget and project estimate

provisions. The contract services/materials management services receive the

requisition/indent for the procurement of materials/equipment/services duly

approved by the competent authority and then plan and organize the

procurement action. Normally an open tendering system for procurement is

adopted during construction stage of a project. However, depending on the

22
circumstances and the requirements, limited tendering or single tendering

system is also adopted in specific cases. Following are three types of tenders:

4.1 Types of tenders

Based on the materials classification and Delegation of Powers (DOP)

handbook of NTPC, following three types of tendering is adopted in NTPC:

TYPES

OF

TENDERS

OPEN LIMITED SINGLE

TENDER TENDER TENDER

Fig-6: Types of tenders

(a) Open tender:

23
 Procurements of value Rs 15 lakh and above must be done through open

tendering, as it involves a lot of cost and time. Open tender is accessible to

all known reliable and proven sources of particular equipment/ material. For

the above purpose, advertisement is given in two or more newspapers of all

India repute in addition to one or more local newspapers, where the work is

to be executed. However, in case of Empanelment, a pre-qualification

process of invitation for bids will take place, only once in every three years,

by advertising in newspapers as stated above. Empanelment is done in case

of award of contract for Environmental Impact Assessment (EIA), Flora-

Fauna study etc. The criteria for pre-qualification will inter-alia consist of

past performance, financial soundness, technical competence, organizational

capability etc., but for the items valued less than 15 lakh, the pre-

qualification can be done on the basis of data available in trade journals,

manufacturer’s directory or approved vendors list of state government and

central government. For new ventures, methodology of Expression of

Interest (EOI) is adopted and by means of advertisement, new bidders are

invited to provide their credentials and based on it, short listing of

appropriate bidders is done.

(b) Limited tender:

Limited tender is a tender, where instead of sending bid enquiry to all the

possible vendors through newspapers, a limited number of vendors are

24
 intimated through post or fax. But, a limited tender may be invited only for

the procurement worth less than Rs. 15 Lacs. In case of a limited tender,

minimum of four bidders are invited to quote the prices for the required

equipment/materials/services and these four bidders must be from the

approved list of vendors mentioned in the open tender. However, a limited

tender is a special case and cannot be issued without proper explanation and

requirement. In case of urgency& exceptional cases, items worth more than

Rs.15 Lacs may also be procured though a Limited Tender Enquiry (LTE),

with authorization of competent authority and the reason must be recorded in

the indent documents/note sheet. Further, as per the circular No. 265/2007

the selection of vendors are to be done through a screening committee before

approval by the competent authority.

(c) Single tender:

Where procurement is made by contacting only a single source on grounds that

the item to be procured is of a proprietary nature or on account of

standardization or on grounds of urgency of requirement, it will be treated as a

single tender. In case of proprietary items, a certificate to that effect has to be

issued by the indenter at appropriate laid down levels in each case. Orders on

basis of single tender will be issued with the approval of General Manger or any

competent authority to which powers are delegated. However, a Single Tender

25
Enquiry (STE) is to be done only on exceptional cases and is not encouraged by

NTPC.

4.2: PROCESS OF PROCUREMENT

26
 CONTRACT PACKAGING

PREPARING A COST
ESTIMATE

NOTICE INVITING TENDER

BID OPENING

BID EVALUATION

APPROVAL & AWARD OF

CONTRACT

Fig-7: Process of Procurement

1) CONTRACT PACKAGING

Contract packaging is the first step of procurement for a project. The total

project work is broken into smaller well-defined packages. This is done with the

view to optimize the number of contracts to be handled for the better planning,
27
co-ordination and implementation of the whole project and at the same time to

execute the project at an optimum cost to the organization. The development of

contract package list for a project is done jointly by Engineering, Contracts, and

Corporate Planning and Finance functions of the organization. The contract

package, being extremely vital for a successful project implementation, is

approved by the highest corporate level authority. A feasibility report is also

prepared for a project, which contains all the details of the various equipment

systems and services required.

2) PREPARING A COST ESTIMATE

Cost estimation is the most important financial activity in the process of

budgeting and procurement. Further, Cost Estimate is the basis of Award and

correctness & accuracy of the estimate is of utmost priority and in turn, ensures

procurement at lowest possible prices. Whenever NTPC procures some material,

it also specifies how it intends to finance the package through External

Commercial Borrowings (ECB), internal and other sources. The procurement of

the first kind i.e. ECB requires financial clearance from the Finance

(Concurrence) department. For this purpose, cost estimation is done before

forwarding the indent document to the finance department. The methods of cost

estimation, which are used by NTPC, are:

(a) Historical cost method:

28
In this method, the Cost Engineering department at NTPC utilizes the latest cost

incurred for similar kind of project. For example, if the cost estimate has to be

prepared for new thermal power plant, the latest executed thermal power plant

rates will be used for estimation. Hence, the rates so obtained are very near to

the actual rates that might be prevalent in the market at that point of time. But,

to smoothen the effect of inflation and various other financial components in the

prices at the time of the execution of that project, an escalation factor is used.

All the prices of the previous projects are multiplied by this factor and a very

close estimation of market rare is thus obtained.

(b)Market rate method:

Market rate method is used for the procurement of equipments that are not in

very large numbers and value. In this method, once an indent is prepared, some

of the vendors registered at NTPC or listed in trade journals are sent a request

for quoting the prices of particular equipment. This enquiry is not a tender and

the rates provided by the vendors are not a part of the bid. After the information

is received, the rates quoted by various vendors are compared and the lowest

quoted price is taken as base rate for calculations. However, if the difference in

the price quoted by two vendors is reasonably high, an average of the two may

be taken as the base. However, 10% discount is considered in the budgetary

offers.

3) NOTICE INVITING TENDER

29
The next step is to invite various bidders to bid for the required package. The

Notice inviting tender (NIT) is published in various leading national newspapers

as per guidelines and procedures. Copies of NIT are also sent to the bidders who

have evinced interest in supplying similar equipments or services in the past. In

case of procurements funded by external funding agencies following

international competitive bidding procedures, the NIT is also published in the

Indian trade journal and a copy of NIT is sent to each of the embassies/ high

commissions of members countries of the funding agency. In the NIT, time, date

and venue of bid opening, amount of bid security etc. is mentioned and only a

specific part of Qualifying Requirements (QR) is published. However, the

bidding documents stipulate the complete and detailed QR specific requirements

to a particular contract package. Such qualification criteria include the financial

status of a bidder (manufacturer or project executing agency), technical

requirements to be fulfilled etc. NTPC invites sealed bids in two stages i.e.

Stage- I: Techno Commercial Bid and Stage- II: Price Bid or both

simultaneously. For Hydel and wind power projects, bids are invited in separate

stages, whereas in case of thermal power projects, bids are invited

simultaneously. All bids must be accompanied by Bid Security of a particular

amount in a separate sealed envelope. Any bid not accompanied by an

acceptable bid security in a separate sealed envelope shall be rejected by NTPC

as being non-responsive and returned to the bidders without being opened.

30
4) BID OPENING

31
Bid opening is the next step in procurement process. Tenders are opened on the

due date and time mentioned in the NIT. If the date mentioned is declared

holiday, the next working day will be considered as the opening date, but the

time will remain the same. These sealed bids are opened by a committee

nominated by the tender committee members from the respective departments at

the time indicated in the invitation to tender, in presence of representatives of

the tenderers, who wish to attend and a representative of Finance. When bids are

opened, the names of all present tenderers would be read out for the benefit of

the bidders present and where feasible, the various price schedules from the

Grand Summary Price Schedule (Schedule 5) are read out. Any omission or

irregularity such as absence of signature of a tenderer, absence of earnest money

deposit, references etc. may be pointed out on the document itself and is signed

by the nominated bid opening committee.

5) BID EVALUATION

32
The process of evaluation of bids begins with an examination of the bids in

order to determine:

1. Acceptance of all Qualifying Requirements.

2. Acceptability of bid security furnished by the bidder.

3. Completeness of bid and correctness of signature.

4. Computation of arithmetical errors in the bid price schedules.

5. Stated deviations from the bidding conditions, which might reflect on the

substantial responsiveness of the bid and justify its rejection.

The detailed evaluation is carried out only for bids, which are substantially

responsive. Bid evaluation considers price and other factors in a transparent

manner and in accordance with the stipulated evaluation criteria stated in

bidding documents such as cost compensations for the deviations from the

bidding conditions taken by the bidders, differential price factors for guaranteed

parameters etc. In case of procurement under international competitive bidding

procedures, the bid price is converted into a single currency i.e. in the Indian

National Rupees (INR). If the bidder wishes to pay a combination of amounts in

different currencies, it may quote its price accordingly, but use not more than

three foreign currencies. The foreign currencies in which the bid prices are

quoted should be converted into INR by applying SBI bill selling rate on bid

opening date.

33
Once the lowest evaluated bidder is selected as above the next step is to

determine whether the qualification requirement as stipulated in bidding

documents are met and whether the bidder in question is capable to successfully

execute the contract. An affirmative determination of the above is pre-requisite

for award of contract to the bidder. In case the lowest evaluated bidder does not

meet the above requirement, the similar determination is done for the next

lowest bidder. If the bidder also fails, the process is continued, until the lowest

evaluated and qualified bidder is chosen.

6) APPROVAL & AWARD OF CONTRACT

A Tender Committee is formed to decide on the award of contract valuing 2 lacs

and above. The members of Tender Committee at appropriate level shall consist

of representatives each from Indenting, Procurement/Contracts and Finance

department. NTPC determines to its satisfaction whether the Bidder selected as

having submitted the lowest evaluated responsive bid is qualified to

satisfactorily perform the contract in terms of the qualifying requirements

stipulated in Bid Data Sheet. The determination will take into account the

Bidder’s financial, technical and production capabilities, in particular to its

contract, work in hand, future commitments and current litigation. It will be

based upon an examination of the documentary evidence of the Bidder’s

qualifications submitted by the Bidder in Attachment 3 to the bid, as well as any

other information, as NTPC deem necessary and appropriate. An affirmative

34
determination will be a prerequisite for award of the contract to the Bidder. A

negative determination will result in rejection of the Bidder’s bid, in which

event; NTPC will proceed to the next lowest evaluated bid to make a similar

determination of that Bidder’s capabilities to perform satisfactorily. “The

bidder which satisfies all the qualifying requirements and offers the least

price is awarded the contract”.

35
 4.3: CONTENTS OF A BIDDING DOCUMENT

The facilities required, bidding procedures, contract terms and technical,

requirements are prescribed in the bidding documents. The bidding documents

include the following sections:

Section I – Invitation for Bids (IFB)

Section II – Instructions to Bidders (ITB)

Section III – Bid Data Sheet (BDS)

Section IV – General Conditions of Contract (GCC)

Section V – Special Conditions of Contract (SCC)

Section VI – Technical Specifications and Drawings (TS)

Section VII – Forms and Procedures (FP)

Documents Comprising the Bid

The bid submitted by the Bidder shall comprise the following documents:

1. Bid Form duly completed and signed by the bidder, together with all

Attachments

2. Price Schedules duly completed in all respect by the bidder.

3. The bid shall also contain necessary details of the Equipment and

Mandatory Spares to be imported from Associate/Collaborator by

manufacturer or bidder

36
Each Bidder shall submit with its bid the following attachments:

(a) Attachment 1: Bid Security

A bid security shall be furnished in a separate sealed envelope. Bids not

accompanied by the requisite bid security in a separate sealed envelope, or bids

accompanied by bid security of inadequate value, shall not be entertained and in

such cases, bids shall be returned to the bidders without being opened.

(b) Attachment 2: Power of Attorney

A power of attorney, duly authorized by a Notary Public, indicating that the

person(s) signing the bid has/have the authority to sign the bid and thus that the

bid is binding upon the Bidder during the full period of its validity.

(c) Attachment 3: Bidder’s Qualifications

The Bidder shall provide satisfactory evidence that he and/or, where applicable,

his collaborator/associate/partner(s) of Joint Venture:

 Is a manufacturer, who regularly manufactures equipment of the type

specified and/or undertakes the type of work specified and has adequate

technical knowledge and relevant experience for the works covered in the

bidding documents.

 Does not anticipate a change in ownership during the proposed period of

execution of work (If such a change is anticipated, the scope and effect

thereof shall be defined).

37
 Has adequate financial stability and capability to meet the financial

obligations pursuant to the Works covered in the Bidding Documents. (The

Bidders should submit five (5) copies of their profit & loss account and

balance sheet for the last five (5) years).

 Have adequate design, manufacturing and/or fabrication capability and

capacity available to perform the work within the time period specified.

 Has an established project management organization covering the areas

related to engineering of equipment/systems, interface engineering,

procurement of equipments and the necessary field services required for

successful construction, testing and commissioning of all the power plant

equipments and systems covered in the scope of work for the package.

 Has established quality assurance systems and organization designed to

achieve high level of equipment/system reliability, during manufacturing

and/or fabrication and field installation activities.

 A company formed by the merger of two or more companies or divisions of

such companies engaged in supply and installation of power generation

equipments can also participate provided the constituent companies or

divisions before merger individually or jointly meet the stipulated

qualification requirements fully.

(d) Attachment 4: Eligibility and Conformity of the Facilities

Documentary evidence that the facilities offered by the Bidder in its bid or in

any alternative bid, (if permitted) are eligible and conform to the bidding

38
documents. The documentary evidence of the eligibility of the facilities shall

consist of a statement on the country of origin of the plant and equipment

offered, which shall be confirmed by a certificate of origin issued at the time of

shipment.

Attachment 4A: Special Tools and Tackles

The bidder shall provide the details regarding Special Maintenance Tools and

Tackles. The cost of these Tools and Tackles shall be included in the Bid Price.

(e) Attachment 5: Subcontractors Proposed by the Bidder

The Bidder shall include in its bid details of all major items of supply or

services that it proposes to purchase or sublet, and shall give details of the name

and nationality of the proposed Subcontractor, including vendors, for each of

those items. Bidders are free to list more than one Subcontractor against each

item of the facilities. Quoted rates and prices will be deemed to apply to

whichever Subcontractor is appointed, and no adjustment of the rates and prices

will be permitted.

(f) Attachment 6: Deviations

Deviations, if any, from the terms and conditions of Bidding Documents or

Technical Specifications shall be listed only in Attachment 6 to the bid. The

Bidder shall also provide the additional price, if any, for withdrawal of the

deviations. Except for the deviations listed in Attachment 6, the bid shall be

deemed to comply with all the requirement in the bidding documents and the

bidders shall be required to comply with all such requirements of bidding

39
documents and technical specifications without any extra cost to NTPC

irrespective of any mention to the contrary, anywhere else in the bid, failing

which the bid security of the Bidder may be forfeited.

Attachment 6A: Certificate Regarding Acceptance of Important Conditions

Bidders are required to furnish a certificate indicating their compliance to the

provisions, duly signed and stamped by the bidder, in a separate sealed

envelope. Any bid not accompanied by such certificate in a separate sealed

envelope shall be rejected by NTPC and returned to the Bidder without being

opened.

(g) Attachment 7: Alternative Bids

Bidders wishing to offer technical alternatives to the requirements of the bidding

documents must first price the NTPC’s design of the facilities as described in

the bidding documents, and shall further provide all information necessary for a

complete evaluation of the alternatives by the NTPC, including drawings,

design calculations, technical specifications, breakdown of prices, proposed

installation methodology and other relevant details. Only the technical

alternatives, if any, of the lowest evaluated bidder conforming to the basic

technical requirements shall be considered by the NTPC.

(h) Attachment 8: Local Representation

If a foreign bidder has engaged an Indian agent, it will be required to give the

following details in its bid as per the format enclosed in the Bidding documents:

 The name and address of the local agent;

40
 What Service the agent renders; and

 The fixed amount of remuneration for the agent included in the offer.

(i) Attachment 9: Deemed Export Benefits

The CIF (Cost of Insurance & Freight) value of import content in the Ex-works

(India) price quoted in Schedule-2 of the bid, if any, shall be necessarily

declared by the bidders in Attachment-9 to the bid. The relevant certificate for

claiming the deemed export / custom duty benefits shall be issued on the

aforesaid declaration basis only. In case, no such import content is envisaged in

the bid or the CIF value of import content to be declared is zero, the bidder shall

indicate "NIL" against the CIF value of import content. In case where no value

is indicated by the bidder against the CIF value of import content in Attachment

-9 or statement / any declaration like 'later', 'to be furnished later', 'NA' etc. are

indicated by the bidder, in such cases the CIF value of import content in the bid

shall be considered as "NIL" for the purpose of evaluation of bids and issuance

of relevant certificate for claiming the deemed export / custom duty benefits

(j) Attachment 9A: Customs Duty Benefits for Import of Construction

Equipment

Declaration regarding the Customs Duty Benefits, for Import of Construction

Equipment Considered in the bid.

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(k) Attachment 10: Functional Guarantees

The declaration on the Guaranteed parameters and declaration on demonstration

parameters as per NTPC's format.

(l) Attachment 11: Erection Tools and Tackles

List of Erection Tools and Equipments which the bidder proposes to bring to site

in case the contract is awarded to him.

(m) Attachment 12: Technical Data Sheets

Technical Data Sheets duly filled in as per the NTPC's format.

(n) Attachment 13: Bought Out Items

Details of bought out items to be directly dispatched by the sub-vendor(s) to

site.

(o) Attachment 14: Quality Assurance Programme

Details regarding the overall quality management & procedures which the

bidder proposes, to follow during various phases of execution of the contract.

(p) Attachment 15: Additional Information

Any additional Information which the bidder wishes to provide in his bid.

(q) Attachment 16: Milestone Schedule

Details regarding the timing & sequence of all key activities necessary for

successful completion of the facilities and giving the important milestone as per

NTPC's format.

(r) Attachment 17: Price Adjustment Data

Details regarding Price Adjustment as per NTPC's format.

42
(s) Attachment 18: Equipment and Mandatory Spares to be imported

from Associate/Collaborator

Details of Equipment (including type test) and Mandatory Spares to be imported

from Associate/Collaborator by the Manufacturer or the bidder, as per NTPC's

format.

(t) Attachment 19: Electronic Fund Transfer Authorization Form

Electronic Fund Transfer Form duly filled in as per NTPC's format.

(u) Attachment 20: Declaration on Fraud Policy

Form of Acceptance of Fraud Policy duly filled in as per NTPC's format.

The Bidder is expected to examine all instructions, forms, terms, specifications

and other information mentioned in all the sections as well as attachments stated

above in the bidding documents. Failure to furnish all information required by

the bidding documents or submission of a bid not substantially responsive to the

bidding documents in any aspect will be at the Bidder’s risk and may result in

rejection of its bid. The Bidder is advised to visit and examine the site where the

facilities are to be installed and its surroundings and obtain for itself on its own

responsibility all information that may be necessary for preparing the bid and

entering into a contract for supply and installation of the facilities. The costs of

visiting the site shall be at the Bidder’s own expense. The Bidder and any of its

personnel or agents will be granted permission by NTPC to enter upon its

premises and lands for the purpose of such inspection, but only upon the express

43
condition that the Bidder, its personnel and agents will release and indemnify

NTPC and its personnel and agents from and against all liability in respect

thereof and will be responsible for death or personal injury, loss of or damage to

property and any other loss, damage, costs and expenses incurred as a result of

the inspection.

PRICE SCHEDULES

Bidders shall give a breakdown of the prices in the manner and detail called for

in the Price Schedules. The Bidders shall present their prices in the following

manner:

Separate numbered Schedules shall be used for each of the following elements.

The total amount from each Schedule (1 to 4) shall be summarized in a Grand

Summary (Schedule 5) giving the total bid price(s) to be entered in the Bid

Form.

 Schedule No. 1- Plant and Equipment including Type Tests charges and

Mandatory Spares Parts supplied from Abroad

 Schedule No. 2- Plant and Equipment including Type Tests charges and

Mandatory Spares Parts to be manufactured within Employer's (NTPC)

Country.

 Schedule No. 3- Local Transportation including port handling, port

clearance, port charges, Inland transit Insurance and other local cost

incidental to delivery of Plant & Equipment and Mandatory Spares.

44
 Schedule No. 4- Installation Services including Erection Works, insurance

covers other than inland transit insurance and other services.

 Schedule No. 5- Grand Summary (Schedules Nos. 1 to 4)

 Schedule No. 6 -Recommended Spare Parts

 Schedule No. 7 -Taxes and Duties, applicable on Ex-Works (India) Price

Component (Schedule-2) in respect of direct transaction between the Bidder

and Employer (NTPC), not included in Bid Price.

 Schedule No. 8A - Break up type test charges quoted in Schedule-1

 Schedule No. 8B - Break up type test charges quoted in Schedule-2

 Schedule No. 9 - Unit Adjustment rates.

4.4: E- PROCUREMENT

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E
-PROCUREMENT is very important to achieve e-governance

and for applicability of uniform procurement process to all units.

It has the ability to reduce procurement cost by reduction in lead

time, reduction in transaction cost and cycle times etc. E-procurement also helps

in building collaborative relationship with suppliers. It enables greater

transparency; implements best practices, and increases the vendor base. It also

reduces the possibility of cartel formation and generates reasonable competition.

It helps to achieve savings in administrative and process cost. E-procurement

enhances the security and it is also a step towards ERP systems for the

organization.

CONCEPT AND SCOPE

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E-procurement is purchase and sale of supplies and services and management of

procurement process over Internet. Manual tender processes can be long and

cumbersome, often taking three months or longer, which is costly for both buyer

and supplier organizations. E-Tendering replaces these manual paper-based

tender processes with electronically facilitated processes based on best tendering

practices to save time and money. Through E- Tendering, NTPC is able to

manage the tenders coming in, with all tenders stored in one place. It can cut

and paste data from the electronic tender documents for easy comparison in a

spreadsheet. Suppliers' costs in responding to Notice Inviting Tender (NIT) are

also reduced as the tender process cycle is significantly shortened. E-tendering

offers an opportunity for automating most of the tendering process: from help

with preparing the tender specification; advertising, to tender evaluation and

placing of the contract.

E-PROCESS WORKFLOW

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 Fig-8: Process of E-procurement

The process of e-procurement shall be taken up at Contracts & Materials

(C&M) department after receipt of the requisition or the indent. The indent

48
duly approved by the competent authority, as per Delegation of Powers (DOP)

handbook of NTPC, is a pre-requisite to initiate e-procurement action. Once the

indent is approved, the C&M department then plan and organize the

procurement action.

In case of open tender contract valuing 2 lacs and above, a Tender Committee

is formed for preparation and approval of Qualifying Requirements (QR).

Then, various bidders are invited online to bid for various packages. A Notice

Inviting Tender (NIT) is published online on NTPC’s E-procurement portal.

The interested bidders can purchase the tender document of the required

package, by sending a demand draft or a cheque of the required amount, as

mentioned in NIT, in favour of NTPC. Once the payment is received, a login id

and password is given to the bidder to view and download the tender document.

Clarifications regarding QR or any other technical queries in the document are

resolved online through e-mails, message chart boards etc. Based on the

clarifications to the bidders, if required, the tender committee may issue the

necessary amendments. These amendments shall be automatically forwarded

to all the vendors who have downloaded the documents. The bidders shall

prepare the bids online. Till the time they are submitting their bids, they shall

be saving the bids at the server under their Digital Certificate.

Bidders are then required to submit and upload their bid online prior to a pre-

defined date and time, as mentioned in the NIT, on the NTPC’s e-procurement

website based on the tender requirements defined in the tender documents, viz:

49
 Qualifying Requirements documents,

 EMD details

 Technical data sheets and Commercial bid etc.

However, the Earnest Money Deposit (EMD) / Bid Security of a particular

amount, have to be submitted offline in a separate sealed envelope. Any bid not

accompanied by an acceptable bid security in a separate sealed envelope shall

be rejected by NTPC as being non-responsive and returned to the bidders

without being opened.

Once the bids are uploaded by all the bidders, neither any bidder nor any

employee of NTPC can access the server prior to bid opening date and time. At

the time of bid opening, using individual digital certificates & passwords, the

tender committee shall open the EMD documents first, then the qualifying

requirement details shall be opened, followed by the Technical bid opening and

the technical data sheets and the deviation statement – technical.

The commercial price bids of only those bidders who are meeting QR and are

TECHNICALLY acceptable, and have submitted the necessary EMD will be

opened on later date by the tender committee. On the date of price bid opening,

a comparative statement of bid price schedules is automatically generated

online and only the members of tender committee have access to both the

quoted price and ranking of each bidder. However, each bidder can only view

the rankings and not the quoted price of other bidders.

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REVERSE AUCTION

The next step is called a REVERSE AUCTION. It is a type of auction in which

the role of the buyer and seller are reversed, with the primary objective to drive

purchase prices downward. In an ordinary auction (also known as a forward

auction), buyers compete to obtain goods or services. In a reverse auction,

sellers compete to obtain business. During a reverse auction, all the interested

bidders log on to the auction site and inputs several quotes, in multiples of a

specified amount, over a 30-90 minute period. These quotes reflect the prices at

which they are willing to supply the requested package. As the bidder can only

view its relative position with respect to other bidders, he bids down the price

until the price quoted by him becomes the lowest of all.

After completion of reverse auction, the L1 bidder (the bidder which quotes the

lowest price) will submit the item rates within 48 hours (2 days) of completion

of reverse auction. The percentage reduction of prices achieved during the

auction is uniformly distributed over all the items. In no case, the individual

item rate can be revised to higher value than indicated in the original item rate

schedule against which the reverse auction has been conducted. After receiving

the item rate, the tender committee shall put up recommendations to the

competent authority off line. After approval of competent authority the order

shall be released to the L1 bidder as per normal procedure.

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BENEFITS OF E-PROCUREMENT MODEL

 Reduced tender cycle-time.

 Fast and accurate pre-qualification and evaluation, which enables the

automatic rejection of suppliers that fail to meet the tender specification.

 Faster response to questions and points of clarification during the tender

period.

 Reduction in the labour intensive tasks of receipt, recording and distribution

of tender submissions.

 Reduction of the paper trail on tendering exercises, reducing costs to both the

organization and the suppliers.

 Improved audit trail increasing integrity and transparency of the tendering

process.

 Improved quality of tender specification and supplier response.

 Provision of quality management information.

5. LIMITATIONS OF THE STUDY

52
 Some data is to be kept confidential by the organization and hence, cannot be

included in the report specifically the ongoing tenders which are under

evaluation by the department.

 Exact financial figures especially with respect to price schedules etc., with

name of any bidder cannot be presented.

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6. RECOMMENDATIONS

♦ Price bids should be filled online from various bidders, so that arithmetic

accuracy can be maintained.

♦ E-Procurement process should be done more frequently.

♦ Any technical and commercial details in the evaluation reports should be

furnished with proper reference along with the page numbers as mentioned

in the bid documents.

♦ Strict instructions should be given to all the bidders to furnish supporting

schedules along with the annual reports, without which complete Financial

Analysis cannot be done.

♦ Bidders should be given proper training sessions for filling of bid forms and

schedules.

7. ANNEXURE-1

A typical example of preparation of cost estimate for one package:

54
Summary of the cost estimate exercise:

When the cost estimation is done the following output is generally is derived:

Abstract cost Estimate

Package name(Equipment or system to Lift Pump Equipment Package

be purchased)
Project name Farraka super thermal power project
Bidding pattern ICB
Financing ECB/DCB/internal resources
Cost estimate Rupees in million
(A) supply (equipment ) As per detailed
calculation
Ex works price 1614.39
Type test charges@ ------ % 1.07
(B) Spares @ ------- % 96.87
(C) Erection
F & I ------ % 68.45
Erection 581.18
(D) Civil cost 836.60
Sub total (A to D) 3198.56
(E) Duties and taxes 285.93
Total (A to E) 3484.49

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The total of supply cost, erection cost and civil /structural cost are estimated
based on detailed quantity and rates as under:

Amount = Quantity (estimated by engineering department) x Rate (to be

decided based on available data or data to be collected by cost engineering)

The quantity for any package for system is decided based on size of plant and
the associated billing quantity.

56
7. ANNEXURE-2

My experience of attending one of the bid openings in NTPC Limited:

Package name: switchyard package for lata tapovan hydro power plant

Bid opening date: 16th June, 2009

Mode of financing: external commercial borrowings (ECB)/ own

resources

Mode of tendering: open tender enquiry (OTE)

Bidders: L & T Limited

HCC Limited

Soma enterprise limited

Gammon (India Limited)

Patel engineering limited

Specifications of bid opening:

• Only two members are allowed from each party.

• Bid security should be valid for 225 days or 7 and half months.
• Guarantee has to be furnished from the list of banks.
• Both, bid guarantee and attachment 6A of all the bidders should be
word by word. If there is any deviation in the required documents
then the bid of the concerned party will not be opened.
• The discount letter should be submitted along with the bid security
otherwise it will not be relevant.

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7.3 ANNEXURE-3

RATIO ANALYSIS OF L&T LTD. (one of the bidder that has submitted the
bid for lata tapovan hydro power plant project)

INR Million
S.No. Particulars 2004-05 2005-06 2006-07
1 Turnover 9168 11706.74 15945.82
2 Profit After Tax 391.58 489.04 711.81
3 EBIT 560.77 740.41 1046.85
4 Share Capital 179.87 179.87 179.87
5 Reserves & Surplus 1236.8 1491.27 1903.95
6 Net Worth 1416.67 1671.14 2083.82
7 Capital Employed 1771.09 2381.07 2985.69
8 Net Profit Ratio (%) 4.27 4.18 4.46
9 RONW (%) (PAT / NW) 27.64 29.26 34.16
10 ROCE (%) (EBIT / CE) 31.66 31.10 35.06

8. CASE STUDY

58
 E-Procurement in Government of Andhra Pradesh, India
Abstract

The Government of Andhra Pradesh (GoAP) has implemented many statewide

e-Government applications since the year 2000, when the Central Government
of India enacted the IT Act of 2000 to provide legal recognition to electronic
transactions. As a part of these initiatives, GoAP has set up an E-Procurement
Marketplace, linking government departments, agencies and local bodies with
their vendors. The main objectives of the e-Procurement initiative are to: reduce
the time and cost of doing business for both vendors and government; realize
better value for money spent through increased competition and the prevention
of cartel formation; standardize the procurement processes across government
departments/agencies; increase buying power through demand aggregation;
provide a single-stop shop for all procurements; allow equal opportunity to all
vendors; bring transparency and ultimately reduce corruption.

Application context

The GoAP procures goods, services, works and turnkey contracts worth $ 2.0
billion every year. This procurement is done centrally through a single unit, as
well through individual Government agencies who manage their own
procurement needs. Many different mechanisms are used for procurement such
as tenders (open, limited, single), rate contracts and catalogue purchases.
Procurement processes are governed by the guidelines of the GoAP and
sometimes of external agencies like the World Bank, which may be funding a
project. Tenders are announced in newspapers through paid advertisements, and
suppliers were expected to buy tender documents at a price of $ 250.

Prior to the introduction of an e-Procurement platform, procurement in

Government departments was carried out through a manual tendering process.
This process involved obtaining internal approval of the project, publishing a
Notice Inviting Tenders (NIT) in several media outlets, bid submissions
(voluminous sheaths of paper) by suppliers, bid evaluations by buyers, and
finally, the awarding of the procurement order and signing of agreements. The
complete process required a long chain of internal authorizations and scrutiny
59
(at times involving several departments), several visits by suppliers to
departments, and the generation of reams of paper-based statements and
evaluations. The manual tender system was suffering from the following
deficiencies:

i. Discrimination and delay in issue of tender schedules to suppliers:

Govt departments control the issuance of tender documents to the bidders,
after verifying their applications. There existed an element of subjectivity
and discrimination in this process, in addition to delays in the preparation
of tender schedules due to shortages of paper and related stationary items
in the Government Departments. As a result, on occasion the tender
documents were not issued to the bidders on the announced dates, putting
some of the bidders in disadvantageous positions.

ii. Cartel formation to suppress competition: Through dubious means, the

participating bidders would gather the list of prospective bidders for a
procurement request. They would use this information to lobby for
formation of syndicates or cartels and bid at higher quotations.

iii. Physical threats to bidders: In regions plagued by factions and/or Mafia

groups, genuine bidders were physically threatened and prevented from
submitting their bids. The bidder or his agent had to risk their physical
safety to submit bids in the tender box placed in the office of the tender
inviting authority. The media often reported such incidents, showing the
Government in a bad light.

iv. Tender Boxes at Multiple locations: To counter the menace of

contractors’ cartels and physical threats to bidders, some Government
Departments started keeping the tender boxes at multiple locations.
Instead of yielding the desired results, however, this practice was putting
departmental officials who had to collect the tender boxes after closure of
tender submission time at risk. Physical transportation of tender boxes
from multiple locations to a central point also proved to be a risky
proposition in such an environment.

v. Tampering of tender files: For the purposes of evaluation, the bid

documents are transported across the administrative hierarchy, which
introduces the risk of tampering or loss along the way. The transportation

60
 of bid documents, manually and through surface mail, is also a time
consuming activity.

vi. Delays in finalization of tenders: Red tape, lack of transparency, and

manual movement of files across the administrative hierarchy was
resulting in inordinate delays in the finalization of tenders. Typically,
tenders for major projects would take 90 days to 150 days to process.
These delays were contributing to cost and time overruns for the projects.

vii. Human interface at every stage: The manual system exposed the
departmental personnel to the bidders at every stage of the process viz.,
sale of tender schedules, issue clarifications, bid submission, bid
evaluation. Such repeated contact between bidders and departmental staff
could lead to subjectivity, favoritism and other undesirable practices.

viii. Lack of Transparency: Procurement is considered a sensitive function,

with all related information tightly controlled and closely guarded by
government departments, resulting in a severe lack of transparency in the
entire process. This lack of transparency leads to misinformation and a
lack of trust in the system by the bidders, media and the citizens.

A New Approach

The severe shortcomings in the manual tender system had an adverse effect on
the reputation of Government departments. Delays in the finalisation of
suppliers for materials and services for government projects had crippling
impacts on the completion of projects and delivery of services to the citizens. A
cabinet sub- committee on tender reforms instituted by GoAP in the year 2000
recommended the creation of an e-Procurement market place. This would
facilitate online tendering based on Internet technology to provide ‘any where
any time’ access to the bidders for participating in tendering. This would also
eliminate the non value adding activities like manual sale of tender documents,
manual opening and reading of bids, preparation of comparative statements (as
they are automatically available), audit/cross check of comparative statements,
time spent in movement of files from one person to another, manual creation of
purchase order and delivery schedule etc. Automation of the procurement
transactions reduces human error, enhances the integrity of the data,
61
brings in transparency to the Government procurements and facilitates
standardisation of processes.

The entire e-Procurement process was designed to avoid human interface i.e.,
supplier and buyer interaction during pre bidding and post bidding stages. The
application ensures total anonymity of the participating suppliers, even to the
buyers, until the bids are opened on the platform. The e-Procurement application
provides automatic bid evaluation based on the evaluation parameters given to
the system. These improved processes have eliminated subjectivity in receipt
and evaluation of bids and has reduced corruption to a significant extent.

To bring in transparency in e-Procurement, tender documents containing all

details are hosted on the web site. The documents can be downloaded by the
interested suppliers free of cost, from the day of publication of a tender.
Suppliers are no more dependent on the officials for various details. At any time
in the procurement cycle, any person associated with the transaction can check
and know the status of the transaction. This saves time and effort involved in
finding out the status of a purchase order, besides enabling better planning of
inventory.

At the outset, an effort was made to standardize the procurement processes and
forms followed by various departments especially for public works tenders.
Today, all the departments follow common tendering process and forms for
works tenders. These processes have been re-engineered to further improve the
efficiency and curtail subjectivity in tender evaluation on the part of the
department users. A similar exercise is underway for products as well.

Implementation Challenges

 The first challenge was to arrive at a sustainable business model with

proper implementation strategy. The GoAP considered the following three
alternative business models for implementation of e-Procurement.
1. Government owned – government operated
2. Government owned – operated by a private operator

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3. Public Private Partnership model

The first two models required fresh Government investment in an area where
there was no prior experience in AP or any other state. These models were
dropped from consideration as senior government functionaries were
apprehensive about the return on investments and possible criticism in case
of failure of the system. It was therefore decided to implement e-
Procurement in a Public Private Partnership (PPP) model wherein the
private partner would bring expertise in technology, invest upfront in setting
up the exchange and recover the costs by charging the user departments for
completed transactions. The PPP model was selected because the private
partner takes on the risks related to changes in technologies, and return on
investment. This model combines accountability with efficiency, as the
services are governed by strict service level contracts. Moreover, GoAP had
experienced success with the PPP model in some other projects.

In view of the unique nature of the project, the GoAP engaged M/s
PricewaterhouseCoopers as consultant for assisting GoAP in drawing project
requirements, developing Request for Proposal (RFP) documents to select a
partner and to advise in the selection process for establishing an e-
Procurement exchange. Only vendors with an existing e-procurement
software or platform were considered for the project. Ground-up
development of the exchange was avoided to expedite the implementation
and also to benefit from the experience that the vendor was expected to bring
from earlier implementations of similar projects. A consortium lead by M/s
C1 India Pvt. Limited was selected as the private partner, based on
competitive bidding to implement the project through PPP model.

The PPP model is of the Built Owned and Operated (BOO) type. In this
case, M/s C1 India owns the system. The GoAP registers the Web site
domain name and it is the absolute owner of data. As per the agreement, the
GoAP reserves the right to buyout the software and hardware at a pre-
specified written down value at the end of the present contract period i.e.,
March 31, 2007. The GoAP has not guaranteed any specific revenues on this
model but has assured that all procurements costing above Rupees one

63
 million by government departments, PSUs and local Government bodies will
be done exclusively through this Portal.

Though the ultimate objective of GoAP is to have a government-wide e-

Procurement solution, considering the complexities involved, a strategy was
evolved to approach implementation in a phased manner. A pilot was
conducted in four selected departments to prove the new system and then roll
out to other departments. Over a period of 9 months, the pilot was used to
create templates for various types of procurement practices prevalent in
Government departments to set the stage for rollout across other
departments. In order to effect a gradual transition from the conventional
tender system to e-Procurement, the GoAP issued executive orders and made
e-Procurement mandatory in the pilot departments for all procurements
exceeding a value of $250,000 in the first instance. This threshold limit was
subsequently lowered to $125,000 at the end of the Pilot phase. After the
success of the pilot phase, e-Procurement was immediately rolled out in all
the remaining departments, for all procurement above $25,000. Within 30
months, the platform was servicing 8 Government departments, 13 Public
sector Units, 51 Municipalities and 5 Universities with a cumulative
turnover crossing $ 8.5 billion from 12,441 transactions.

 The second challenge was to ensure interdepartmental coordination, as

e-Procurement centralizes the processing of tenders and touches several
departments located in different parts of the state. A high level Steering
Committee (Project Implementation Committee) chaired by the Chief
Secretary of the state, comprising the Secretaries, Heads of all the
participating departments and representatives of the private partner was
formed to promote coordination. The Steering Committee dealt with issues
related to Business Model, selection of private partner, interdepartmental
coordination, Business Process Reengineering and other important issues in
the implementation of the project. The Information Technology and
Communications Department of the GoAP was made the nodal agency to
oversee the implementation of the project.

 The third challenge was Change Management as the implementation

involved adoption of new ways of doing things for a variety of stakeholders.
Setting up the e-Procurement exchange was not difficult in terms of its
technology components, but getting stakeholder buy-in to adopt the platform
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 was a big challenge. The various steps taken to manage change with the
Stakeholders are enumerated below:
o To ensure buy-in of the top management and to resolve procedural issues,
the Steering Committee chaired by the Chief Secretary of GoAP met once
every month during the Pilot stage. The committee considered in great
detail all issues that arose during implementation and the problems were
resolved then and there without loss of time.
o Meetings were held by the Chief Minister on regular basis to monitor the
progress. Procurement targets were fixed for each participating department
and were monitored closely. These targets were made a part of the
Performance Indicators that were used to measure the performance of key
officials in the pilot departments.
o Project Champions were identified within each department. Core groups
were formed in the user departments to chalk out a strategy for
implementation within the departments. Fortunately, the Indian Institute of
Management, Ahmedabad (IIM-A), had trained the key functional officials
from the target departments that were associated with the e-Procurement
project as Chief Information Officers (CIO). They worked closely with the
Project Manger, GoAP and C1 India project team.
o The CIOs functioned as a bridge between the user departments and the
technology experts i.e., service provider. The CIO’s assisted the Steering
Committee in bringing in necessary regulatory changes, and helped in
reengineering the departmental procurement process. The CIOs acted as
project champions within their department driving the implementation and
the change management process.
o The stakeholders were involved in the detailed ‘As-Is’ and ‘To-Be’ process
studies. Feedback was taken from the Builders Association of Andhra
Pradesh and Small Scale Industries Manufactures Associations on the ‘As
Is’ and ‘To Be’ processes. The gaps thrown by the ‘To-Be’ process study
were addressed through appropriate customisations, and the agreed upon
process by the stakeholders were mapped on the software.
o To effectively communicate the objectives and benefits of the project,
training and workshops were conducted for both the department users and
the suppliers. At least 400 department users and 1000 suppliers were given
hands-on training during the Pilot phase. Training and workshops are a
regular feature even in the roll out phase whenever a version change of
software is introduced.
o Detailed training kits and FAQs were prepared and hosted on the web site
for the benefit of users. These workshops also served as good forums to
receive user feedback on the application. This feedback was always
analysed and appropriate changes were made in the process of the
application.

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 o The service provider runs a strong and committed call centre type help desk
on a 24X7 basis to record and address all the issues of the users.

 The Fourth challenge was resolving the security and authentication

issues of the platform. Stakeholders have to be completely convinced that the
transactions on the platform are secure. The identity of the participating
bidders, and the quotations that the bidders make, are very sensitive
information in the entire tendering process. The eProcurement solution was
designed with extensive security features to help ensure that all activities are
logged, no unauthorized person has access to data, all sensitive data is
encrypted, and that the system can be restored in a minimal time in case of a
disaster or system crash. A sound security policy for eProcurement has been
implemented using the following features to ensure security in the platform.
 Two-factor authentication
 Digital signatures to ensure non-repudiation
 Bid encryption at the database
 Online Antivirus scanning
 128 bit SSL encryption
 Audit trail of each activity
 Privilege-based user access
 Time stamping
 Firewall for screening system access
 Access control system
 Intrusion detection system (network and host)
 Regular back up of data
 Disaster recovery site

The e-Procurement software was audited for security by a third party during the
Pilot phase in August 2003. The security audit recommended better functional
controls. There were no major security lapses identified by the auditors. M/s C1
India complied with the recommendations within a suitable time frame to the
satisfaction of the GoAP.

Benefits and Costs

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The initiative has transformed the procurement process in government
departments. The automated processes and work flows have improved internal
efficiency within the departments; shortened tender cycle times, eliminated
subjectivity in the evaluation of tenders with system based auto bid
evaluations, and have reduced corruption.

o Reduction in tender cycle time: In the pre e-Procurement era, the

departments used to take 90-135 days for finalization of high value tenders.
The tender cycle time has gradually come down to an average of 42 days
over a period of one year and further reduced to 35 days at the end of the
second year. This improvement is due to automated workflows, the ability to
track and monitor file movements through a function called ‘tender tracker
and tender monitor’, which pictorially displays the tender file status,
indicating the number of days each government worker has taken to clear the
file. These software features have made the procurement processes
transparent. There is greater accountability since the electronic records/
documents can be retrieved at any given time and all the activities of a
system user are logged in the system. The works departments has been able
to divert surplus resources from procurement wings to other needy wings
like works execution.

o Reduction in opportunities for corrupt practices: the e-Procurement

system allows a supplier to view the NIT, download bid documents and Bill
of quantities, free of cost on ‘any where’ and ‘any time’ basis from the
Internet. This has empowered the supplier as he is no more dependent on the
government workers for issue of RFPs, clarifications on the bids, bid
submission, information on tender evaluation status, etc. The entire e-
Procurement process has been designed to eliminate the human interface i.e.,
supplier and department interaction during pre bid and post bid processes has
been minimized. The automatic tender evaluation functionality helped to
reduce subjectivity in tender evaluation and helped to curb opportunities for
corrupt practices to a significant extent and increased the accountability of
procurement officials.

In terms of transparency, any supplier or an ordinary citizen can get

information about tenders which are live on the platform through a search
engine on the home page. The NIT, bid documents, Bill of Quantities are
available to a citizen for free downloads. A supplier participating in a tender
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 knows the list of other participating suppliers, the documents furnished by
his competitors, price quotations and the evaluation result, as soon as a stage
is completed by the departments in the system. Short information on the
status of tenders and award values will also be available to any citizen
accessing the web site.

o Cost Savings: One way to estimate cost savings is to compare the

percentage discount of Tendered Contract Value over the Estimated Contract
value for service contracts awarded before and after the implementation of
the e-Procurement system. The following table shows comparative savings in
costs for works departments based on historical data available with the
Commissionerate of tenders, which is the nodal agency for finalization of
tenders costing above $0.45 million value for works departments, like the
Roads & Buildings department and Irrigation department. Tenders processed
through the e-Procurement platform in the pilot phase during 2003-04, the
first year of the initiative, yielded a reduction of 16% in the quotations in
comparison to the previous years when the procurement was manual.

Tender Analysis (Source - Commissionerate of Tenders, GoAP)

Year Mode of No of Estimated Tendered Percenta

procurement tender ge
Contract Contract
s discount
Value in Value in
$(Million) $(Million)
2001-02 Conventional Mode 188 177 166 - 2.65
2002-03 Conventional Mode 125 126 115 -8.65
2003-04 Conventional Mode 53 83 75 -9.00
2003-04 eProcurement 107 166 124 -25.00
Mode

The project encourages bidders to participate in government tenders.

Supplier participation has increased from an average of 3 per tender in
conventional mode to 4.5 in e-Procurement mode. The cartels are eliminated
and even small and medium suppliers are now able to bid, as the platform
facilitates any-where any-time bidding. The departments have reaped

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 significant cost savings of an average reduction of 20% in cost for the
procurement transactions done through the exchange during the year 2003-
04 and 12% in 2004-05 due to a competitive environment.

There is also a substantial reduction in the advertisement costs in the press

media, as e-Procurement tender notices were shortened to contain only basic
information on the name of work, estimated costs and the URL of the e-
Procurement site. There has been a 25% saving in the column space used,
resulting in savings of approximately $0.56 million in a year. Transparency
in the bidding process and in the system of automated tender evaluation
through smart forms with parameterized qualification criteria has reduced
subjectivity in the tender award process and reduced corruption. The MIS
feature in the system reveals data on government procurements
instantaneously to the bureaucrats and ministers. Besides, it has made a
visible social impact, as the citizens are assured that government
procurement is conducted in a transparent manner, saving taxpayers’ money.

o Costs of implementing the system: A lean project team consisting of a

Project Manager and an Asst. Project Manager (both trained as CIOs by IIM-
A) reporting directly to the Secretary of the IT&C Dept. has overseen the
implementation. The IT&C Department spent Rs 0.55 million on training
and Rs. 7.2 million for purchase of Desktops, printers, UPS and Internet
connections (ISDN connections, Modems) for the departments in which the
project was piloted. The GoAP had engaged PwC to prepare an e-
Governance road map and blue print for 50 major departments, identify 5
core projects, and implement these 5 core projects for a fee of Rs 16.2
million. About 15% of this expenditure can be apportioned for the e-
procurement project.

As per the agreed business model, the private partner has invested upfront in
hardware and software for establishing an e-Procurement exchange for
GoAP and there are no costs to the government on this project. It is estimated
that the private partner has incurred a capital expenditure of $1.12 million on
software and hardware, and an operational expenditure of $0.54 million per
annum on the e-Procurement platform. In order to incentivize the suppliers
using the platform, no charges were collected from the bidders participating
in tender related transactions on the e-Procurement platform.
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 The government has incurred expenditures of $0.62 million on hosting
charges @ $101.6 per tender, and transaction fees @0.24% on the completed
transaction fee to the Private partner during the pilot period. However, in the
rollout phase a new business model was evolved to shift the burden from the
government to bidders, with every participating bidder paying a transaction
fee @ 0.04% of tender value, with a maximum cap. The transaction fee
structure payable by a bidder is set up to be less than the tender fee charged
in the manual tender system.

Key Lessons

o The support of political leadership and the formation of a high-powered

steering committee (project implementation committee) with a mandate to
take decisions on all issues were important factors for successful
implementation of the e-Procurement project.
o Insistence on a single mode of bid submission through the e-Procurement
platform was a decisive factor in the adoption of the system by suppliers.
o A participative design process that involved workshops attended by
department users, suppliers/contractors was used to draw user requirements.
Subsequent training of users was a major factor in developing the application
to the satisfaction of users.
o The pool of CIO’s from various government departments trained at IIM-A,
acted as change agents in implementing e-Procurement. The pace of
implementation accelerated with Chief Information Officers from different
domains taking over as project champions.
o Implementation needed enormous efforts in change management. The
users were slow to adapt to the changes in initial period but the project
ramped up once the users became comfortable with the new system.
o The selected Application Service Provider (ASP) business model under
Public Private Partnership was helpful in scaling up the transactions
during roll out, as the private partner has resources to meet the challenge.
o A rational and affordable Pricing model based on value and number of
bids per tender is also very important for sustaining the e-Procurement
initiative. Cost to government with ‘No Cost’ to supplier in the Pilot phase,
and Cost to supplier with ‘No Cost’ to government departments in the roll
out phase, facilitated easy acceptance from suppliers in the early stages and
speedy roll outs to government departments in the later stages.

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o Committed project teams from both the service provider and the
Government, 24X7 help desk, strong security features, deployment
architecture and MIS have contributed to the overall success of the e-
Procurement platform in AP.

9. LEARNINGS FROM THE PROJECT:

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 • Bidding and tendering procedure for the procurement of large value
capital goods.

• Various sections of Bidding Documents and the clauses included there in.

• Qualifications of suppliers/contractors to participate in bidding process.

• Types of tenders like Competitive Bidding, Limited Tendering, Open

Tendering, Restricted Tendering and Single Source Procurement.

• Various aspects included in E-Procurement model and how E-

procurement can overcome the shortcomings of manual bidding
procedure.

• Problems that can be encountered while implementation of E-

procurement model.

• Benefits and costs involved in implementation of E-procurement process.

• Various aspects included in financial analysis of any company.

10. CONCLUSION

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This report is meant to familiarize the reader with different aspects

involved in Procurement of Large Value Capital Goods., manually as

well as electronically. In each chapter of this report, all the concepts

and definitions have been discussed in detail in a lucid manner with

the main objective of gaining insights into the bidding process. The

facts and figures included in the report are supported with the suitable

graphs and diagrams wherever required. Also, care has been taken to

arrange all the material in a clear and logical manner. As far as

possible, technical terms have been avoided and language has been

kept simple for the better understanding of the reader.

11. REFERNCES

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 Bidding documents

 NTPC-Delegation of Powers (DOP)

 Tender evaluation reports

 NTPC Office Circulars

 http:// www.ntpc.co.in

 www.ntpc-tender.com

 http://en.wikipedia.org/wiki/Reverse_auction

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