No Monopoly Please

The decision of the Delhi High Court ordering an end to the monopoly of C1
India over the governments e-procurement business is a landmark decision in
Indias e-procurement domain. The court has clearly ruled that there cannot be a
policy decision in the name of sophistication or precision to create a monopoly
in favor of one entity to procure goods or services without an open tender.

Even if its assumed that the Directorate General of Supplies & Disposals (DGS&D)
might be justified in seeking to continue with C1 India as its application
service provider (ASP) on a long term basis, that intention should have been
mentioned in the original Notice Inviting Tender (NIT) which was not the case.
As the tenure of the contract is only five years at the most, the contract
duration cannot be continued in perpetuity, says the ruling.

C1 India had bagged the e-tendering service provider contract from DGS&D for
providing an e-tendering software solution on April 16, 2004. The contract
became effective from April 1, 2005, and was valid for an initial period of
three years up to March 31, 2008. However, the contract was further extended for
another two years.

The court also set aside the claims of DGS&D that since C1 India had taken a
long time to develop the e-tendering solution for DGS&D, it was not possible to
change the ASP to any other entity. Even if this argument of DGS&D was to be
accepted, then it would imply that C1 India should be continued in perpetuity as
the ASP for DGS&D, says the judgment. Although it was ruled that the contract
was arbitrary and illegal but since the term of the initial contract had expired
on March 31, 2008, the court did not quash the same, since the transaction under
the initial contract had already concluded.

The court has also restrained DGS&D to jointly market the e-procurement
solution to other government departments with C1 India. And DGS&D has been
directed to immediately undertake a fresh tendering process for appointing an
ASP by issuing a notice for inviting tenders duly published.

Moreover, the fresh tendering process should be completed and contract
awarded to a new ASP within four months from the date of the judgment while C1
India has been permitted to continue for the next four months. DGS&D however
intends to file an appeal petition in the Supreme Court, once they get a
go-ahead and legal opinion from the Additional Solicitor General and Commerce
Ministry. Thats now for the new dispensation at South Block to decide.

The Epilogue

The objective for introducing e-tendering system is to streamline and
automate the tendering process of DGS&D.A It is also aimed to bring efficiency
in the process, reduce the total time for tenders and build a database of
suppliers bids for data mining and trend analysis by adopting leading
procurement practices.

However, considering that e-tendering software is highly complex and its
implementation for government agencies, particularly can be time consuming and
expensive; most government agencies appoint an ASP with a commercial model at
no costs to government. Under this model, DGS&D outsources the software
development and management and services to an ASP, apart from providing the
software and hardware, implementation of the system; training resources and
providing software maintenance support to the customer.

NexTenders filed a petition under Article 226 of the Constitution of India
for termination of contract between DGS&D and C1 India. In the petition, it was
alleged that even though a RFP was issued for e-tendering system, it did not
bear any date and had various blanksimplying that it was incomplete in
respect of the specifications and conditions to which it was subject to.

Considering that DGS&D was not aware about the prospective service provider,
the obvious thing for DGS&D should have been to give wide publicity on national
media inviting all e-tendering solution providers. NexTender argued that instead
of doing this, DGS&D chose to rely on an old issue of Computers Today of July
1-15, 2000, even though the RFP was prepared and circulated sometime in July
2001.

Only the software offered by C1 India was found to be meeting the security specifications. After the evaluation report was given a go-ahead by the high level technical committee, price bid of C1 India was opened M Raman, director general, DGS&D

Moreover, the RFP allegedly circulated did not have a commercial bidding
round or a competitive price discovery procedure and it did not even state the
criteria for awarding the bid to the lowest responsive bidder.

As per Clause 12.10 of the RFP, only vendors with an off-the-shelf
electronic tender applications are eligible to bid. The e-tender application
should be easy and ready to deploy with a 5% to 10% customization. Bids for
software development will not be entertained.

In this case, the e-tendering solution was not ready when the contract was
granted. Even before C1 India had undertaken the work of customizing its
tendering solution software for DGS&D, various related software modules had
already been developed by NIC officers. Therefore, C1 India was only required to
customize their software so that the integration was possible with the DGS&Ds
existing software. Consequently, there was no justification for the company to
take nearly a year to make the e-tendering operational.

Moreover, the NexTenders counsel alleged that considering that DGS&D at the
time of awarding the contract had about 10,000 suppliers of goods and
commodities, it was obvious that the transaction for procurement of e-tendering
solution was valued at well above Rs 25 lakh. That was because the revenue
generation for the service provider would be expected to run into crores.
Consequently, the RFP/NIT should have been published in at least one national
daily. However, this was not done by DGS&D with a view to favor C1 India.

However DGS&D refutes all such charges. Ideally it should have been C1 India
who should have taken us to court simply because while awarding the contract, we
assumed that we had around 10,000 suppliers client list while in reality we only
had around 1,200 supplier clients. So, C1 India should have taken us to court
for the breach of contract, says M Raman, director general, DGS&D.

It was argued by NexTenders that DGS&D was merely a front which is being
exploited for marketing e-tendering solution of C1 India. DGS&D was alleged to
be exploiting the fact that it is the central purchase department of the
Government of India, being a procurement specialist and having the mandate to
offer its own services to government agencies to assist them in their
procurement activities.

The Official Version

DGS&D in a written reply has clarified their side of the story, by carefully
detailing out the entire process adopted by the department in choosing C1 India
for developing the e-tendering module.

In order to undertake faster procurement at lower cost and to bring in
transparency in procurement process, in 2001, action was initiated to develop a
web based application software with the help of National Informatics Center,
says Raman.

Headed by DGS&D, a committee including external experts was constituted for
guiding DGS&D at various stages, in developing software and providing network to
connect various offices of DGS&D and the suppliers. Out of the eight steps
involved in the e-procurement platform of DGS&D, only one step of e-tendering
platform has been outsourced.

The concept of e-tendering was relatively new in 2001, and not many firms
were known to have been successful in this field. With a view to tap all firms
in the domain, Nasscom was consulted and it furnished a list of seventy-two
firms including top software companies like IBM, Wipro, Infosys, Satyam, etc. In
addition, fifteen firms were identified on the basis of the magazine Computer
Today issue of July 1-15, 2000. Thereafter, letters were sent to eighty-seven
identified firms to obtain their suggestions for e-tendering module, adds
Raman.

In response, DGS&D received seventeen proposals and several rounds of
discussions were held with these companies. On the basis of preliminary
discussions, four firmsOracle, ITI, C1 India and e.tendering were selected for
the final tendering process.

After two rounds of pre-bid conference with these firms and feedback received
from external experts, the specifications of the bid documents were finalized
and bids were invited. The technical bids were opened in March, 2003 and were
evaluated by a committee. Thereafter, mock trials were held in June, 2003 when
applications software of the companies were evaluated with reference to the
specification.

The software offered by C1 India was only found to be meeting the security
specifications. After the evaluation report was given a go-ahead by the high
level technical committee, price bid of C1 India was opened. The contract was
awarded after negotiations and the application of C1 India was integrated with
the software developed by NIC, says Raman.

Elaborating on the role of C1 India, Raman says that once the bids are
received online, they are transferred to the DGS&D system. Therefore, only for
the limited purpose of inviting bids, the platform of C1 India is being used.

Legal Impact

The Delhi High Court judgment has clearly ruled out the monopolistic
control of a single ASP, especially with reference to DGS&D, since being a
government department it processes requests from state governments regarding
e-tendering processes, says Vakul Sharma, cyber law expert, Delhi High Court.

Would this lead to abolishing monopoly in other areas too? Sharma believes
that not too much should be read into the judgment. One cannot extend the ruling
to other areas, since the ruling is specific to the e-tendering domain and will
only ensure a level playing field for the other e-tendering players.

Stuti Das

stutid@cybermedia.co.in