Preventive Vigilance in Public

Procurement
~: Study based
By: on the Power
SectorExaminers
:~
Chief Technical
Organization
Central Vigilance Commission

Introduction
Chief
Technical
Organization

Examiners

Setup in 1957, in MoW,H&S

To secure economy in expenditure and
better technical & financial control.

Santhanam Committee (1963)

Extend jurisdiction over construction work

of all other ministries also.
To be brought under CVC.
Studies Civil, Electrical, Mechanical, C&I,
Purchase, IT Contract award and execution.

Pre Tender Stage

Appointment of Consultants
Preparation of DPR/Estimates

Preparation of
DPR/Estimate
Common deficiencies

Estimated made in hurried manner

Lack of conformity b/w various schedules of items,

drawings, specifications, and contract conditions,

etc.

Estimated made on last accepted rates basis only.

Present market conditions also to be accounted for
Cascading effect (higher LPP -> higher Evaluated

Cost -> higher LPP)

Estimated not prepared on actual site conditions

Borrowed quantities from similar previous project

Result: Delays, Deviations, Time &/ cost

overrun

Example 1.
Earth filling package ~ Estimated Cost:
73 Cr

L1 quoted price : 129 Cr. (76% higher)

TC again evaluated estimated of 100 Cr by
adding non-standard stipulations like local
area taxes, etc.
Finally, re-tendering of work.
New estimate (103 Cr) with borrow area lead
distance of 14 KM instead of original 4-5 KM
New L1 quoted price : 192 Cr.
Option of PSUs explored, awarded to NBCC:
118 Cr

Awarded value of 118 Cr against

estimated cost of 103 Cr doesnt seems
justified.
Actual execution of work from borrow
area of 4-5 KM only, but revised
estimate was prepared on lead distance
of 14 KM. Hence, award of contract
with lead area of 14 KM not justified.
Also, resultant payments with 14KM
lead distance turn out to be inflated
and unjustified.

Example 2.

Detailed estimate for a power project E based

on the previously executed power project O.
Project E was an expansion project, where
the electricity & water was supplied to the
contractor free of cost. In project O
contractors were to arrange electricity & water
supply. Obviously, the estimated cost of project
E should have been less than for the project
O.
In the same estimate, quantity of Extraction of
rock in the CHP area deviated from 5000 cum
to 56000 cum, which indicates that estimate
was not prepared on the basis of actual site
conditions.

Example 3.

In a PSU, the estimate for a work was

prepared for Rs. 55.70 crores.
Estimated cost of plants, equipments &
auxiliaries derived from the L2 bid
received for some other similar ongoing
work.

The quoted rates of L1 bidder was Rs.

36.30
crores,
which
were
approximately 35% low.
Estimates were seemingly kept on the
higher side.

Example 4.

In one PSU, work was awarded on ST to another

PSU without a realistic estimated cost. As initial
cost was not properly worked out before, amount
of Rs. 30.50 Cr was allowed above the initial cost
without justification.
Sanction Amendment letter of the cost estimate
was issued after 15 months of issue of LOA.

Many a times the work awarded on ST to the

PSUs are getting executed through private
agencies by a back to back arrangement.
Keeping higher estimates in the beginning
results in award of work at higher rates to
private parties in a non-transparent way.

Tendering Stage

Preparation
of
Tender
documents
Inviting and Opening of tenders
Pre-Qualification
Evaluation of Bids and award of
work

Preparation of Tender
Documents
Contract Legal Document
Poor Agreement:

Poor contract performance, delays, cost overrun

Litigation
Opportunity for contractor to make undue profit

Reasons of poor agreement:

Tender documents prepared in hurried manner

Prepared by various sections, no conformance

Copied from older tender documents

Clubbing of contracts, No modifications

Example 1.

NIT envisaged Design, Manufacture, Supply,

Erection,
Testing
and
Commissioning
(DMSETC) of the proposed package
One trading firm requested for waiver of
DMSETC as it itself didnt qualified the criteria
PSU modified its PQR to allow bidding by
parties having design & manufacturing
experience and intimated all the bidding
parties

PSU intimated of amendment only to

parties who had purchased bid documents
against original NIT, hence inadequate
publicity.

Example 2.

Tender Conditions stipulated provision of

penalty in case of failing to meet the
guaranteed power consumption
Penalty Ceiling of 10% of Contract Value
No threshold or minimum power consumption

Hence, Bidders could deliberately keep

minimum power consumption to get
award
If fail to consume the minimum power
consumption, get away with only 10%
penalty
Non-objective evaluation

Inviting & Opening of

Tenders
Open Tendering

Most preferred

Limited Tendering

Small Value
Urgent work
Few bidders in market

Single (Nominated) Tendering

Exceptional cases Natural calamities,

Emergencies
Proprietary
Items
in
case
of
goods
procurement
No bids inspite of repeated tenders

Relevant CVC Circulars

Inviting and Opening of Tenders

Circular No. 06-03-02-CTE-34 dt. 20.10.2003

& Circular No. 15/5/06 dt. 09.05.2006
Open tendering as the most preferred mode

Transparency in the preparation of panel in

case of limited tenders.

Publicity

Circular No. 98/ORD/1 dt. 18.12.2003

Up loading the Notice Inviting Tender and also

tender documents in a downloadable form on

the web site.
The web site publicity is to be given even in
the case of limited tenders.

Receipt & Opening of Tenders

Circular No. 05-04-1-CTE-8 dt. 8.6.2004

Suitable arrangements for receipt of
sealed tenders at the scheduled date
and time through conspicuously located
tender boxes needs to be ensured.
In case of bulky tender documents the
provision for submission of bids to
designated officials by hand should be
made in the tender document itself.
Open the bids in the presence of bidders.

Example 1.

One PSU invited offers from two arbitrarily

chosen firms, M/s A and M/s B for an offsite area
work (Rs. 31 Cr) for pretender tie up. M/s B
became the lowest.
The PSU then re-invited the bids from these two
firms after deleting two items i.e. structural steel
and sheeting. This time M/s A became the L-1.
Again a revised bid for the third time was invited
only from M/s A after adding 1 item of sheeting.
M/s A in their revised bid while quoting higher
rates for sheeting, also increased their rates for
other items also.

The total pre-tender tie-up was entered into

in a non-transparent & unfair manner
resulting in undue benefit to one contractor.

Example 2.

The PSU E invited bids for SG area work

costing Rs. 64 Cr from arbitrary subcontractors without any QR.
M/s A offered highest margin and became H-1.
However, it was rejected by the client PSU C
stating that M/s A was not meeting its
requirements - PSU C had not earlier
stipulated any particular QR for the subcontractors.
The PSU E suggested another arbitrary agency
B. M/s B also was rejected by the PSU C.
Ultimately, the PSU C suggested 03 agencies,
of which only M/s D showed interest, but backtracked later.

Whole sub-contracting process was nontransparent and was left to the mercy of the
client PSU C.
In this case, a clear cut QR for sub-contractors
should have been stipulated by the PSU C in
the tender document itself, instead of arbitrary
rejection of proposed sub-contractors.
In fact the PSU C should have kept itself
away from suggesting the names of the subcontractors.
Also, the PSU E should have prepared a panel
of sub-contractors in a transparent way.

Example 3.

In one case, while inviting tenders, the publicity

made for short-listing of bidders was stated to
have been given in various newspapers and also
through the website.

A copy of only one newspaper cutting was

made available. Organization was not sure
if the same had appeared in all the
newspapers envisaged.
Also in the tender notice, no details of
eligibility criteria, probable cost of work,
etc. had been mentioned, neither any
reference to the availability of the detailed
tender information on any website.

Example 4.

In one of the tenders a condition was

incorporated
authorizing
the
buyer
organization to award contract to the next
lowest evaluated bidder (L2) in the event of the
failure of the L1 bidder to sign the contract and
furnish performance security.

This is in violation to Commissions

guidelines on the subject which prescribes
that if L1 bidder backs out due to any
reason, there should be a re-tender in a
fair and transparent manner.
Splitting of works between L1 & L2 parties
without previous such notifications in NIT.

Example 5.

In one case, a stamp was put on each page of the

L1 price bid, containing date of opening &
signatures of the members of the tender opening
committee. However the column for the number
of corrections was kept blank.
The L1 corrected quoted amount was Rs.
40.79 crores, which was just Rs. 5 lac less than
the L2 quote of Rs. 40.84 crores.
In the price bid, a 11% discount on total price
was mentioned below the stamp and signature of
the TOC.
This insertion also was not attested by the TOC.

When was the discount percentage added???

Example 6.

In one case, the covering letter of the price

bid of one of the bidders to whom the work was
finally awarded was having a list of all the
documents enclosed in the bid.
However, a letter indicating a discount was
also enclosed but this letter was not having
any mention in the covering letter of the
price bid which was containing the list of all the
enclosures.
Incidentally, this bidder could become L1 only
after considering the discount as per this letter.

Possibility of discount letter been added at

a later stage exists.

Pre-Qualification:
Deficiencies

To select competent contractors with

technical
and
financial
capability
commensurate with the subject work
requirement
through
adequate
competition
Stringent PQR = Poor competition
Restrictive PQR = Barriers to potential bidders
Evaluating criteria not notified to bidders
PQR relaxed during evaluation
Credentials of bidders not matched with PQR
Credentials not verified
Completed work credential v/s work in progress

Example 1.

PQR for civil works of hydro plant required

bidder to have achieved concreting of 2500
cum/month.
One bidder requested for lowering of capacity
to 2000 cum/month, but finally submitted
experience certificate of 2500 cum/month
Work awarded to the same bidder

Party requested for lowering of QR, hence

it obviously didnt ever had the
experience.
Hence,
certificate
needed
close
verification.

Example 2.
Ambiguous PQR

In transmission line project, PQR required

successful completion of 2 (two) projects of
similar nature by the bidder; and,
Completion of 200 KM of route length

Whether two projects with both of

individual completed route lengths of
200 KM, or
Whether two projects with cumulative
route lengths of 200 KM

Example 3.

In a case of award of mechanical package by a

Power PSU for work of 2000 MW, only two
works of 200 MW were envisaged to be
completed by the prospective bidders.
Against this, a firm to whom the work was
awarded produced two certificates having
completed works of 200 MW and 210 MW
only.

The PQR appeared to be skewed in favor

of the firm to whom work was finally
awarded.
Incidentally, the firm provided these two
certificates also only after opening of bids.

Example 4.

In award of E&M package by a PSU, the QR

envisaged major share of contribution by the
leader in case of the Joint Venture bidder,
As per the bid proposal of a JV, the leader being
a foreign company indicated major supplies from
their offshore work but in the price bids, the
distribution of works appeared such that major
portion would be supplied by Indian partner.

Prima-facie, the JV got the award by

circumventing the prescribed tender QR as
the work distribution was ambiguous.
Circumvention overlooked by awarding PSU

Example 5.

The original QR envisaged, a specific technology

based equipment having satisfactory operation
for at least two years as on the BOD.
The PSU amended the QR through a corrigendum
in a way that the amended QR did not specify any
period and rather envisaged that the equipment
should be in satisfactory operation on BOD.
This requirement was fulfilled by the favored firm
based on a user certificate stating that the
offered equipments were working satisfactorily
since November, 2000 as against the BOD of
June, 2001. (8 Months)

The period of successful operation of the

equipment was deliberately not specified in
the amended QR to suit a particular firm.

Tender Evaluation and

Award

Most sensitive area susceptible to corruption.

Checkpoints:

Evaluation of tenders as per the notified QR only

Timely decision within validity period
Negotiation with L1 only (005/CRD/012 dated
03.03.07)
Conditions/specifications are not relaxed in favor of
the winning contractor (98/ORD/1 dated 04.09.03)
L1 is not ignored on flimsy grounds
Ensuring that work order/supply order is placed
within justified estimated rates.
Details of award on websites (005/VGL/4 dt.
16.03.05)

Example 1.

In a PSU, tenders were invited under ICB. After

detailed evaluation of the bids, a JV firm with its
quoted price of Rs. 650 Cr became L1.
The firm was invited for post tender
discussions.
During discussion, firm started putting
certain
unwarranted
conditions,
e.g.
exemption of taxes & duties etc. which were not
mentioned in the firms original offer.
Due to reluctance of the firm, the PSU conveyed
that in case they did not come forward in
post tender discussion, their action would
be treated as withdrawal of bid.

In the mean time, the minor JV partner

approached the PSU with the request that
since the major partner of the JV is backing out,
they might be allowed to replace the major
partner with the firm of required credentials.
PSU allowed the minor partner to propose a
new major partner within a period of 04 weeks
but the minor JV partner could not suggest
one.
In this background PSU decided to go for a
snap bid among the agencies who participated
in the original bidding and finally one of those
emerged as L-1 bidder with its quoted price of
Rs. 665 Cr.

A new line of thought emerged whether the action

of the original L-1 bidder should be treated as
withdrawal of offer or the bid had become
non-responsive.
A decision was taken to not to forfeit the EMD of
Rs. 9.0 Cr on the plea of the bid becoming nonresponsive.
However, the opinion of GM (Law) of the PSU
was that since the conditions put forth by L-1 firm
were unwarranted and were after opening of the
bid, as such their action amounted to
withdrawal of bid necessitating forfeiture of
EMD of Rs. 9.0 crores.
The opinion of GM (Law) was also not placed
before the board for taking decision on this issue.

Putting any conditions contrary to the

bid requirements by the bidder at the
time of post tender negotiations
amounts to stalling the process of
finalization of tender and, eventually,
withdrawal of the offer.
The view taken by the PSU, against the
advice of its Law Dept., had given an
undue financial benefit of Rs. 9.0 Cr to
the bidder.

Example 2.

PSU A invited tenders wherein, one PSU B bidder

quoted Rs. 14950/- as item rate but calculated
item amount @ Rs. 24950/-.
As per the ambiguity clause, quoted item rate
had precedence over the amount worked out.
However, the PSU considered Rs. 24950/- as unit
rate against violation of the tender condition.
Contract value of Rs. 24.56 Cr, @ Rs.14950/- and
Rs. 26.66/- Cr @ Rs.24950/-.

Thus, power sector PSU A awarded the work

at higher rate by Rs. 2.1 Cr. by violating
ambiguity clause of tender document.

Example 3.

In another case, a bid guarantee of Rs. 10 crore

given by L1 bidder was initially valid up to
31.10.2004.
The LOI was issued to this bidder on 03.12.2004,
after the validity of the bid guarantee was over.
It was only after placement of LOI, that the bid
guarantee was got extended up to 6.12.2004.

There was no bid guarantee during the

intervening period from 01.11.2004 to
06.12.2004 during which the case was being
processed.
Such situations needs to be discouraged.

Separate official to oversee the EMD validation CVC

Execution Stage

Compliance
of
Conditions
Making Payments
Ensuring Quality
Timely Completion

Agreement

Common observation of
CTEO

Main
focus
remains
on
work
BOQ/Specifications
Hence, other provisions get ignored; e.g.:

Royalty, Rebate, Test charges, etc.

Deployment of manpower, machinery, etc
Material Reconciliation
Deduction of taxes, charges, fees, advances,
etc.
PF, Labor licenses, Safety, Insurance, etc.

Result

Financial irregularity with/or undue benefit to

contractor

Example 1.
Contract Provisions Compliance

As per contract condition, in a project

costing Rs. 15 crores, water for construction
was to be arranged by the contractor.
They were also supposed to pay royalty for
the
surplus
earth
generated
from
excavation.
The PSU provided the water and did not
deduct the royalty from the contractors
bill.

The contractor was unduly benefited by

Rs. 4 Lacs on this account.

Example 2.

In hydro power project, it was seen that only 01

batching plant was deployed against 02
required. Hence, required quantity of concrete
was not produced and the work got delayed.
Similarly, in another case, batching plant was
not installed at all even after lapse of 15
months from the date of start.
Again, concrete work was being executed at
site using volumetric method instead of design
mix concrete produced with batching plant

Thus, the contractor not only saved money

but also compromised the quality.

Example 3.
Interest free advance, Service Tax

In a power project costing Rs. 220 crores, 5%

interest free advance was provided in the
contract agreement.
Another interest free advance of Rs. 11
crores was allowed to the contractor without
any contract provision.
As per the special condition of the contract, the
service tax was the liability of the contractor;
still it was being reimbursed to the
contractor, causing undue financial benefit to
the contractor.

Thus, undue financial benefit was extended

to the contractor.

Example 4.
Safety provisions

In case of two hydro power projects, where

it was observed that safety related facilities
like medical care, ventilation, safety sign
board, helmets etc. were not provided by
the contractor.

This shows the apathy of contractors as

well as of the site staff towards the work
force, working in accident prone area.
The site staff not only gave undue
benefit to the contractor but also were
callous towards labor.

Example 5.
Insurance Policies

It was observed that contractors are either

not taking various insurance policies at all or
taking these policies for part period or for
part value of project.

This not only defeats the very purpose of

stipulating these insurance policies, but
also results in undue financial gain to the
contractor.
CVO of one PSU reported the recovery of
Rs. 1.5 Cr against short insurance in all
the running contracts at the check time.

Example 6.

In one case, the LOI was issued and the

successful bidder was required to furnish
performance guarantee within 30 days of LOI.
It was further stipulated that if the successful
bidder failed to submit the CPG in the
prescribed form within 30 calendar days after
date of LOI, then the bid guarantee amount of
the successful bidder would be forfeited by the
purchaser as LD.
The PBG was submitted by the successful
bidder after 62 days of issue of LOI, no LD was
imposed

Violation of tender conditions, benefit to

contractor

Example 7.
Waiver of charges, etc

In a particular power PSU, the major items

were required to be type tested by the
contractor before supplying to the site.

It was found that type tests were waived

and as a result, type test charges, as
quoted by the bidder, were not deducted
from the contractor.
Such incidence of waiving contract
conditions may not only have bearing on
the quality aspects but also have
financial bearing.

Payment to Contractors
Circular No.10/4/07 dated 10.04.2007

Commission has allowed the organizations to

stipulate interest free advance with elaborate
mechanism for safeguards against its misuse.
BGs taken in lieu of Mobilization Advance need to
be properly examined within respect to the
acceptable format
Any condition deterrent to the Companys interest
should be got withdrawn before acceptance
Verifying the genuineness of the BG from the
bankers.
Separate officer for verification/ timely renewal/
timely encashment of BGs to be designated CVC

Duplicate payment

Payment for the same activity is made under

two different items should be avoided.
(Clubbed Contracts)

Recoveries for statutory taxes/duties

Recoveries not made as per contract condition.

Reimbursements:

Reimbursement of service tax, excise duty etc.

done without obtaining the actual proof of
depositing
the
same
with
authorities
concerned.
Possibility of excess reimbursement.

Payments made for work not done

Escalation paid more than admissible

Escalation clauses detailed formula not

applied correctly.
Arbitrary
advance
given
inspite
of
escalation clause.

Hire charges not deducted

Companys
machinery
used
by
the
contractor for speeding up work, even
though there is no provision in the contract.
In such cases, if the hire charges are not
deducted, contractors get unduly benefited.

Example 1.

Total excavated quantity of earth was

considered for disposal under extra lead
without deducting for back-fill quantity.
Thus, payment was made even for the
quantity not disposed.

This was observed in the work of RCC

chimney for a power project.

Example 2.

One organization, executing the works worth

Rs. 5000 crores was reimbursing the excise
duty to the contractors to the tune of Rs. 800
Crores without verifying the excise duty
challans.

Even after the lapse of one and half year,

the organization was not able to submit
the
reconciled
statement
of
reimbursement of excise duty received by
the contractor and the actual excise duty
paid by the contractor.
Hence, probable undue benefit to supplier

Example 3.

In case of a thermal power expansion

project, concrete mix was designed with
particular cement content, but at the time
of approval of deign mix, the cement
content was increased arbitrarily.

Since, the cement was to be supplied

free of cost by the department, it
ultimately resulted in infructuous
expenditure to the tune several lacs.
The possibility of pilferage of cement
can not be ruled out.

Example 4.

A power sector PSU allowed Rs. 4 Cr interest

free advance during the work execution without
any contract condition on the ground of rise in
the steel prices.
There was a specific escalation clause for steel
and
contractor
was
being
adequately
compensated for rise in the steel prices, so this
action virtually resulted in undue financial
benefit to the contractor.

If the rate of interest on this extra advance

payment is considered same as on the
mobilization advance stipulated in the
contract agreement, this undue benefit
would amount to almost Rs. 50 lakhs.

Example 5.

Before award of work, L-1 firm confirmed to

pass on the mega project concessions
(MPC) to the PSU. However, no MPC were
passed on to the PSU.
Rather a proposal was in the process for
payment of 16% of the total MPC to the L-1
firm as a fee for the consultant who will be
appointed by the L-1 firm for availing these
MPC.
Before placing the award letter the PSU
categorically had rejected the demand of the L1 firm on this account.

16% of MPC (Rs. 20 Crores) : Rs. 3.2

Crores

Quality

As per the contract, surface cleaning and

preparation on steel structural members was
to be done with wire brushing or mechanical
tools depending upon the condition of surface.

But, at site surface cleaning/preparation

was being done only with wire-brush,
whereas certain structural steel members
needed cleaning with mechanical tools
because of scaling.
The thickness of paint over structural
steel members was found less than the
required.

Example 2.

In a RR stone masonry drain work of a

Nuclear power project, bond stones were
not provided at all, which are necessary
for the stability of the stone work.
Similarly the joints in the stone masonry
were observed more than the maximum
permissible size of the joints, which is also
indicative of poor quality of construction.

Example 3.

In one case, it was found that while

dispatching the material from contractors
stores, the items, which were earlier
rejected, deformed and rusted, were mixed
with the other items ready for dispatch to
erection site.

Such lapses prove that supervision at

the time of execution is not given due
importance by the PSU particularly
when the executing agency is another
PSU.

Time Overrun
Many projects have been unduly delayed due
to contractors fault such as

non deployment of adequate plant & machinery,

technical staff,
material, labor etc.

However, no Action against the contractor in

terms of the agreement were taken by the
PSUs.
In some projects, it was further observed that
Extension of Time was granted without
claiming compensation for LD, ignoring all
such correspondence that implicate the
contractor.

Availability of Complete
Report
CVC Website

http://www.cvc.nic.in/ctebook.htm

Farakka LAN

http://191.254.2.25/vigilance/CTEOStudy
.htm