Procurement disputes with the Indian Government
Devina Deshpande and Aishwarya Kaushiq
Tenders in India – an introduction
Public procurement contracts in India are awarded by public auction or tender. The principle underlying India’s procurement regime, and the basis on which public tenders are conducted, is the acquisition of materials and services of specified quality at the most competitive prices, in a transparent and non-arbitrary manner. A number of different tender procedures are available to the Government, including ‘nomination-based tenders’, ‘electronic reverse auction’, ‘limited tender enquiry’ etc. The selection of the tender procedure is dictated by the subject matter, value, technical complexity and nature of the procurement. However, ‘two-stage bidding’ is the most commonly adopted tender procedure (and in particular for highly technical tenders).
The broad stages of a two-stage tender are as follows:
Pre-qualification: Vendors are pre-qualified for participation in the tender based on net worth, turnover, past experience etc. Pre-qualification terms are either set out in a separate pre-qualification bid document or under the tender itself.
Clarification of terms: Bidders may (though this is not always the case) have the opportunity to obtain clarifications on tender terms at a ‘pre-bid conference’. Any modifications will be issued as ‘corrigendum’ to the tender.
Submission of bids: Bids are then obtained from qualified vendors in two parts: (a) the technical bid consisting of all technical details along with commercial terms and conditions; and (b) the financial bid indicating the item-wise price for the items mentioned in the technical bid. The technical and financial bids are submitted together in sealed envelopes.
Bid evaluation and award: The technical bids are opened by the procuring authority in the first instance, and evaluated by a competent committee. At the second stage, the financial bids of only those bidders are opened whose offers are found to be technically acceptable. These bidders are intimated the date and time of opening the financial bid for further evaluation and ranking, pursuant to which the contract is awarded (generally, to the lowest bidder (termed as ‘L1’)). All tenders must be evaluated strictly on the basis of the terms and evaluation methods captured under the tender enquiry document (based on which offers have been received) and no new material condition can be brought in at the time of evaluation.
Tender review and disputes
India’s public procurement framework does not contain an independent grievance redressal mechanism with respect to tender reviews. Instead, tender disputes are generally adjudicated through arbitration or by civil courts with jurisdiction to entertain the dispute.
While this is not formally specified in the procurement framework, government tenderers broadly exercise a two-tier review system:
In the first instance, an aggrieved bidder can report irregularities or file complaints with the relevant officials of the tendering authority itself. However, this suffers from the obvious deficiency of conflict of interest, as the adjudicating authority sits within the entity responsible for causing the grievance. As an alternative, tenders often incorporate arbitration provisions for dispute resolution. This is typically via ad-hoc arbitration under the (Indian) Arbitration and Conciliation Act, 1996. However, if the winning bidder is a foreign entity, there may be scope to request (Indian) institutional arbitration.
In the second tier, the aggrieved bidder can move the Indian courts for relief. As mentioned, there is no specialist court/tribunal which has been authorised to deal with public procurement issues. Instead, the typical route for aggrieved bidders is to challenge the bidding process by filing a ‘writ petition’ with the relevant High Court or the Supreme Court of India.
This article primarily deals with the second of the two options listed above. The appropriate dispute resolution mechanism for procurement disputes with the Indian government would depend on a number of factors including the nature of the grievance, terms of the tender/contract, the value of the claim involved etc. However, contracts entered into with the Indian government (and disputes arising under those contracts) are unique in that public enterprises constitute instrumentalities of the ‘State’ under the Indian Constitution and are inherently bound by principles of natural justice, non-discrimination and fairness. The Indian Supreme Court and (state) High Courts have the power of judicial review through the exercise of ‘writ jurisdiction’ (discussed further below) over arbitrary, irrational or biased procedures or decisions by public tendering authorities while administering or awarding tenders. This provides an added layer of judicial protection to vendors against arbitrary, illegal and unfair actions of the tenderer, as opposed to contracts between private parties which are governed by the law of contracts and provide less scope for judicial intervention.
Stage of the tender
In the first instance, the applicable dispute resolution mechanism for a procurement dispute will depend upon the stage of the tender at which the grievance arises / is raised by the vendor, along with any dispute resolution provisions under the terms/contract between the tendering authority and the bidder. A summary overview is set out below.
Exercise of writ jurisdiction
A ‘writ petition’ is filed for enforcing constitutional rights guaranteed under the Indian Constitution against a state authority (which would include public tendering authorities). As mentioned above, public bodies constitute ‘State’ under the Constitution and are bound to act fairly and reasonably, in the absence of discrimination and in keeping with the procedure laid down by law. This means that, in addition to standard commercial considerations such as efficiency, financial optimisation and suitability, public tender contracts and contracting processes must also be free from bias and arbitrariness, and writ jurisdiction will be exercised by the courts in the event of arbitrariness, irrationality and mala fides by the tendering authority.
These obligations will apply to all actions and processes of the tendering authority and its officers – i.e., in respect of the evaluation and award of the tender (for instance, if the contract is awarded to a bidder in contravention of the tender terms or the tender terms are modified to favour a particular bidder), the administration of the tender process (such as if a bidder is blacklisted without the opportunity to be heard) and the execution and management of the contract (for instance, if the tendering authority unilaterally changes the contractual scope or payment terms after the award of the contract).
An aggrieved bidder/vendor can file a writ either before the Supreme Court or the High Court within whose jurisdiction the cause of action has arisen, requesting the court to strike down any action of the tendering authority showing bias towards any particular bidder, action in derogation of standard procurement process of the government, action in contravention of the tender terms, any act or conduct that prejudices the bidder’s right in any way (such as illegal retention of bank guarantees, forceful extension of work scope) etc. In this respect, foreign bidders are entitled to the same rights and remedies as Indian bidders (and, equally, there is no preferential treatment given to bidders from any particular jurisdiction such as under the GPA).
However, it may not be possible to file in a writ petition for every grievance against the tendering authority (and, certainly, writ petitions filed vexatiously or to disrupt the tender, without a prima facie case being made out, are frowned up and may be penalised by the courts). Writ jurisdiction is a discretionary power awarded to the Supreme Court and the High Courts, and it is up to the courts to determine suitable exercise of this power. In this respect, the courts have repeatedly recognised that every small contractual discrepancy or unfavourable tendering decision cannot automatically warrant a writ petition. The remedy of writ is meant to correct arbitrary decisions of the tendering authority rather than to replace the ordinary recourse available under the Indian Code of Civil Procedure.
Courts are reluctant to invoke writ jurisdiction in commercial or policy matters of the government (unless the government’s action is arbitrary, discriminatory or without basis and justification) or to interfere with administrative decisions by simply substituting their views with that of the tendering authority. This restraint is particularly where technical issues are involved, on the basis that technical aspects are best left to experts and those who have knowledge and skills in the field.
For instance, the court will typically not interfere with the technical judgment of the tendering authority as to:
which bidder is (technically) best qualified for the tender
what qualifications should/should not have been incorporated into the tender
assessment of capacity and efficiency of bidders
evaluations of field tests/trials
financial computations involved in the tender etc.
In addition, courts have refused to exercise judicial review under writ:
where serious and complex facts are disputed which require oral evidence to be taken
where the writ petition is intended to avoid a voluntarily incurred contractual obligation, such as for commercial difficulty, inconvenience or hardship
in the case of pure money claims arising out of contractual obligations, except in exceptional circumstances
In these cases, the court may direct the aggrieved party to resort to alternate remedies such as a civil suit or arbitration, based on the terms of the contract between the parties.
Further, courts are also reluctant to exercise writ jurisdiction where the contract itself provides an effective and efficacious alternative remedy, such as by reference to arbitration. That said, the existence of an alternative remedy will not bar writ jurisdiction where the writ petition has been filed to enforce constitutional rights, principles of natural justice have been violated or where an order or proceedings are without jurisdiction or the legality of an act of the tenderer is being challenged.
Dispute resolution timeline
Regardless of the mechanism relied on, dispute resolution in India can be a time-consuming, costly and cumbersome process. Resolution of a procurement dispute under a writ petition could take from 2-3 months up to a year, based on various factors such as the complexity of the case, nature of dispute and the forum where the dispute is raised. A civil suit for recovery of monies could take even longer. The arbitration process (in particular, ad hoc arbitration) is likely to be equally time consuming and expensive.
Writs are a critical tool in ensuring transparency and accountability in public procurement, with the intention to ensure checks and balances in the functioning of the State and its instrumentalities. However, the constant threat of litigation affects the commercial functioning, competitiveness and flexibility of public enterprises, whose officials operate under fear of scrutiny, and could also obstruct sensitive and time critical procurement, to the detriment of public interest. A writ challenge should not be filed as an automatic or routine reaction to any unfavourable decision by the tendering authority, but only relied on where warranted to uphold the integrity of the procurement process.
Subsequent articles in this series will focus on integrity issues and in-process challenges that arise in the course of the actual bidding process, and potential consequences of the same.