GIST OF COMMERCIAL PROCEDURES

PS : Some of the common points in commercial procedures are being highlighted in the following slides. However, these are only indicative and not exhaustive. The purchase manual may referred for the detailed procedures.

A. ESTIMATED COST 1. The estimated cost is a vital element in establishing the reasonableness of prices. 2. It is important that the same is worked out in a realistic and objective manner on the basis of: a) prevailing market rates, b) last purchase prices, c) economic indices for the raw material / labour, other input costs, wherever applicable etc., The preparation of estimate is vital to ascertain the reasonability of price and the need for going to price negotiation. It should be ensured that the estimates are kept confidential and not accessible to outside agencies. A proper estimate can immensely help in Cost Saving for the Company.

B. SELECTION OF VENDORS In order to ensure that enquiries are sent to right source, the purchase groups shall use the approved suppliers list both for imported & indigenous purchases. The vendor directory needs to be up-dated periodically. In order to obtain multiple response from suppliers, it is essential to have latest names & addresses of the probable vendors, duly updated in the vendor directory.

C. MODES OF TENDERING i. Open tendering The open tendering method has to be adopted for all tenders whose estimated value is above Rs. 5 Crores. However due to special circumstances of the purchase, for valid reasons to be recorded, the open tender procedure can be waived off and limited tender can be issued with prior approval of Chairman. ii. Global Tendering Global tendering is same as open tendering except where items to be procured are not indigenously available.
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iii. Limited Tender. In limited tender, only the most likely and suitable sources are addressed. To invite adequate competition, it is necessary that at least five sources of supply are addressed. Where the number of available sources of supply is less than as specified, the number of suppliers to be addressed may be reduced at the discretion of the General Manager. iv. Single tender When the purchase is finalised on the basis of an offer sent to a single source, this is called a Single tender purchase. It is imperative that the purchase on Single tender basis be made with the detailed justification in its support and with the approval of competent authority. The single tender enquiry can be sent only under the following cimcumstances:

(a) OEM / Licenser / Collaborator, (b) Nominated by the OEM, other than the agent, (c) Vendor developed by HAL, (d) Joint venture companies promoted by HAL, (e) Sources specifically nominated by the customer, (f) Procurement of strategic material from indigenous sources, (g) Manufactures retail outlet for an item proprietary in nature. Note: Quarterly Report on order placed on single tender basis be submitted to the Board and 10% of such cases be reported to Audit Committee as per CVC guidelines.

v. Proprietary tender This is a tender which is addressed only to a proprietary manufacturer / his authorised agent because no equivalent or near equivalent is available from any other source and / or all possible suppliers quote only the product of one manufacturer. vi. Spot Tendering Spot tendering requirements.

is to be resorted only for emerge

D. TENDER EVALUATION The technical evaluation committee report in the prescribed format shall bring out in detail compliance report of each technical feature of the RFQ , deviation if any & the reason for acceptance / rejection of bid & should be signed by all members of the committee. The report shall bring out acceptance or otherwise of the bids without any ambiguity & make clear recommendations. TEC shall be headed by ED/ GM of the Division for proposals to be approved by Complex/ Corporate Office.

E. SPECIAL CONDITIONS TO BE INCLUDED IN THE RFQ FOR DESIGN & DEVELOPMENT. As per para no 7.10 of Annexure IV of DOP, while processing orders for procurement of material required in Design & Development, the future requirement in respect of series production over the length of the project are also to be taken into consideration at the time of placement of order for development phase. Accordingly, the RFQ has to include the following parameters and vendors has to quote accordingly: (i) Quantities required for prototype phase. (ii) Quantities required for production phase. (iii) Transfer of Technology for Repair & Overhaul. (iv) Integrated Logistic Support (ILS). .

The following terms needs to be specifically indicated in the RFQ: (a) The commercial evaluation will be based on the total value for development phase, production phases, integrated logistic support and transfer of technology for repair and over haul. (b) Initial PO will be placed for development items only. Subsequently Production Orders may be placed only after obtaining firm orders for helicopters from the customers and fulfillment of other terms of PO.

F. OTHER IMPORTANT TERMS AND CONDITIONS TO BE INCLUDED IN THE RFQ 1. 2. 3. 4. 5. 6. 7. 8. The RFQ for the system should clearly bring out the anticipated quantity & the period of requirements. Non involvement of Indian agents. Terms of payment Settlement of disputes and Arbitration clause. Security deposit and Performance Bank Guarantees. Liquidated Damage clause. Price Variation formula. Immunity to Govt. of India.

09. Integrity pact clause: Signing of an integrity pact would be considered between HAL & the bidders for contracts exceeding Rs. 20 Crores. 10. Offsets clause: Where the indicated cost of the contract is Rs.300 Crores or more, the inclusion of an offset clause may included. 11. Warranty period. 12. Spares and Product support. 13. Export License. 14. Taxes / Duties.

G. CORRESPONDENCE WITH VENDORS Indenting department should correspondence with suppliers. not carry out any

While Methods Engg / Facility Planning responsible for preparing specification etc, may correspond with various manufacturers to firm up their specifications, once a demand has been raised & sent to IMM for processing for any item / equipment, all correspondence with Vendors, whether on technical or commercial points, has to be carried only by IMM Department.

H. SUB - CONTRACTING The Sub-Contracting may be resorted to due to:a) Lack of internal capacity b) Lack of time to complete target. c) Special purpose facilities not available d) Cost factor e) Reduction in cycle time of the final product. f) Any other reasons, to be recorded. The process of sub-contracting is covered by a separate Sub-Contracting Procedure including instructions issued on the subject vide HAL/CD/552(1)/2007 dtd 14.02.07 as amended from time to time.

I. GENERAL POINTS OF OBSERVATION WHILE PROCESSING THE PURCHASE PROPOSAL BY FINANCE: i) Quoted price is substantially on the higher side compared to estimates. However no justification is available. The comparison between estimated / budgetary quote /previous procurements and quote received not available. Absence of correct project chargeability with relevant head. The correct reason for sub-contracting as required under sub-contracting procedure not indicated. Receipt of single response or single offer acceptance in a limited tender. As per para no. 4 of Corporate office letter no. HLA/CD/617 &CO/FIN/08 dtd 24.09.08, the following points needs to be comply:

ii)

iii) iv) v)

- Retraction of RFQ and review of the requirement to be carried out by the TEC to derive the cause of such single vendor situation at TEC stage and details to be brought out in its report. - The RFQ is to be re-issued if considered necessary, with the approval of CFA after taking suitable corrective measures including re-formulating the specification. vi) Reason indicated for Single Tender either not available or not as per para no 7.3 of Annexure IV of DOP. vii) The recommendation of TEC is not clear viii) The non-availability of ordering information along with TEC recommendation in the case of sub items and optional accessories involved. ix) Order proposed on a particular DGS&D Rate Contract when multiple DGS&D Rate Contracts are available for same item from different vendors.