Independent
Monitors: a Hollow Institution
(FORCE October 2017)
Major General Mrinal Suman
A recent media report said that a former health
secretary and two other retired senior officers had been appointed as
Independent Monitors (IMs) in the defence ministry to
review arms procurement deals, especially scrutiny of complaints about
violations of the Integrity Pact (IP) in deals worth over Rs 20 crore.
The Ministry of
Defence (MoD), Acquisition Wing Secretariat letter No No.1(11)/D(Acq)/16 dated
14 July 2017 spelt out the role and duties of IMs in capital procurement cases
governed by the Defence Procurement Procedure (DPP), revenue procurement cases
governed by the Defence Procurement Manual (DPM), works cases of Military
Engineering Service (MES) and Border Roads Organisation (BRO).
The Genesis
Under DPP-2006, signing of a
pre-contract IP was made mandatory for
all procurement schemes over Rs 100 crore. It was to be a binding agreement between
the government department and the bidders for specific contracts wherein the
government promised not to demand bribes during the procurement process and the
bidders promised not to offer bribes.
As regards their role, DPP-2006 allowed IMs to convey their observations
to the Acquisition Wing if they noticed, or believed to notice any violation of
IP. Thus, it was a pro-active role that allowed IMs close
oversight of the complete process. It also meant that MoD had to take
cognizance of all such reports on record and take necessary action. MoD could
neither ignore them nor keep them in abeyance as questioned could be raised in
post-contract audits/enquiries.
For unknown
reasons, DPP-2009 curtailed the powers of IMs, in that, they could no longer initiate
any enquiry suo moto, even if any
transgression of IP came to their notice. Now they had to await reference from
the buyers. On receipt of complaints with regard to violation of IP from the
bidders, the buyer had to refer the complaint to IMs for their
comments/enquiry. If IMs needed to peruse the relevant records of the buyer in
connection with the complaint sent to them, the buyer had to make necessary arrangements
for the same.
The report of
enquiry, if any, made by IMs had to be submitted to the head of the Acquisition
Wing for a final and appropriate decision in the matter keeping in view the
provisions of IP. The decision of the buyer to the effect that a breach of the
provisions of IP had been committed by the bidder was made final and binding on
the bidder.
In DPP-2016, there has been no change in the role and powers of IMs.
However, the threshold for the application of IP has been lowered from the
earlier Rs 100 crore to Rs 20 crore. The essential elements of IP have also been reiterated in greater
detail. For example, each bidder has to give an undertaking that he shall not
pay any amount as gift, reward, fees, commission or consideration to such
person, party, firm or institution (including agents and others as well as
family members, etc., of officials), directly or indirectly, in connection with
the contract in question. Further, all payments made to the agent 12 months
prior to tender submission have to be disclosed at the time of tender
submission and thereafter, an annual report of payments has to be submitted
during the procurement process or upon demand of MoD.
For the winning bidder, acceptance of no-bribery commitment, disclosure
obligation and attendant sanctions remain in force until the contract has been
fully executed. The set of sanctions include denial or loss of contract; forfeiture
of guarantee deposit and bonds; and refund of all payment to the buyer of any
such amount paid as gift, reward, fees or consideration along with interest.
In addition, at the
discretion of the buyer, the seller is liable for action as per the extant
policy on putting on hold, suspension and debarment. Suspension of business
dealing with an entity may be ordered by the competent authority for such
period as he may deem fit but will ordinarily not exceed one year. Suspension
will have multiple effects – immediate ineligibility from participating in
future bids; in any on-going procurement process, if L1 determination has not
yet been finalised, bid of the suspended entity will be excluded; in any
on-going procurement process, if the lowest bid involves the suspended entity,
the process will be held in abeyance till decision of revocation of the
suspension order or banning the entity is taken; and any contract related to
the procurement process in connection with which business dealings with an
entity have been suspended will be held in abeyance.
Banning of business dealings is a far more severe penalty and
implies immediate ineligibility of the entity from participating in future bids
for a specified period with effect from the date of such order. No new tenders will
be issued to such an entity. In any on-going procurement process, if
determination of L1 has not yet been done, bid of the banned entity will be
excluded. If in any on-going procurement process, the lowest bidder involves
banned entity, the process will be terminated and fresh procurement process, if
required, will be initiated.
A
Closer Look at the Role
Although IMs are
appointed by MoD in consultation with the Central Vigilance Commission (CVC), the Standard Operating
Procedure issued by CVC vide circular No.02/2017 under No 015NGLl091 dated 13
January 2017, inter alia, tasks IMs with much larger role. IMs are required to ensure
desired transparency and objectivity in dealing with the complaints arising out
of any tendering process. In other words, CVC wants IMs to examine the ‘process
integrity’. The role of IMs is advisory and is not legally binding. It is
restricted to resolving issues raised by an intending bidder regarding any
aspect of the tender which allegedly restricts competition or bias towards some
bidders.
All issues are
required to be examined by the full panel of IMs jointly as far as possible,
who would look into the records, conduct an investigation and submit their
joint recommendations to the management. IMs are not expected to concern
themselves with fixing of responsibility of officers. Complaints alleging
malafide on the part of any officer of the organization have to be left to be looked
into by the concerned organisation.
As is
apparent, whereas the role assigned to IMs by CVC is much wider and covers integrity
of the complete procurement process, MoD has restricted it to the compliance of
IP only. It is a strange way to have oversight for probity. Whereas integrity
and probity are all encompassing and much broader issues, the government has
trivialised them by restricting their applicability to bribes alone. IP is a
single issue agreement wherein all complaints have to relate to demand and
offer of bribes. On the other hand, if a vendor believes that he has been
treated unfairly during the evaluation process or that the laid down procedure
has been violated, he has no way to seek redressal of his grievance.
As regards capital procurements under DPP, the buyer has to
provide a copy of IP, along with a brief background of the case to IMs, if
required by them. The bidders, if they deem it necessary, may also furnish any
information as relevant to their bids to IMs. In 'Buy' and 'Buy and Make'
cases, the Indian or foreign vendors submitting multiple bids are required to
submit one IP only. In the case of defence ship building, DPP-2016 mandates
signing of IP for all procurements schemes over Rs 20 crore. Any matter related
to works cases of MES can also be referred by MoD to IMs for their
comments/enquiry.
IP is a solemn pact between two parties. Both should have equal
and fair opportunity to have their grievance redressed. For that, an
independent adjudicator is a prerequisite. One party to the pact cannot acquire
the powers to receive complaints against itself and decide their disposal. It
is simply ridiculous and defies all norms of justice. In case a procurement
functionary demands bribes, the vendor has to lodge complaint with the
Acquisition Wing. Will he ever do that and risk earning displeasure of the
department? As all vendors seek continued good relations with procurement
officials, they would consider it prudent not to raise irksome issues. Moreover,
each complaint has to be supported with hard evidence which is not easy to
gather.
Strangely, it is for the Acquisition Wing to decide whether to
refer the complaint to IMs or dispose it off summarily. In case it is referred
to IMs and their report is received, it is again the prerogative of the
Acquisition Wing to take the final decision. In other words, though IP is a
bilateral agreement between the Acquisition Wing and the vendors, the former
has usurped the right to receive complaints (against itself and its associated
elements) with right to decide their final disposal as well.
In the case of revenue procurements, DPM-2009 mandates signing
of IP for purchases exceeding Rs 100 crores. Thus there is a divergence of the
threshold. Whereas all duties assigned to IMs are similar to those in capital
procurements, Para 12 of DPM 2009 empowers IMs to inform the organisation when
it notices, or believes to notice, a violation of IP. It is a major deviation.
Finally
For strange reasons, every review of DPP results in retrograde
policy decisions. In the name of reforms, existing provisions are diluted and
rendered ineffective without any ostensible reasons. In a similar vein, MoD has
diluted the concept of IMs by depriving them of the power to initiate any
action of their own volition even if a violation comes to their notice. They have
to keep awaiting reference from the Acquisition Wing. Thus MoD has rendered IMs
toothless. Worse, no reasons have been
assigned for the changes.
No oversight/monitoring mechanism can earn the trust of the
environment unless it is independent of the parties involved in the complete
procurement process. The current system of IP and IMs has raised serious
questions about government’s sincerity. In any case, probity in procurement
deals is all encompassing. It cannot be limited to the application of IP only.
If the government
is really sincere about its often repeated assertions of creating an upright
procurement regime, it must convince the environment of its
earnestness. For that, it should constitute a Probity Commission in MoD to act as
a watchdog and semi-judicial ombudsman to monitor and oversee all procurement
activities from evolution of parameters to post-contract administration. Both
sides (buyers and bidders) should be permitted to bring transgressions to the commission’s
notice. It should be for the commission to seek full details and carry out its
assessment of the issues involved.
The commission should be empowered to ask for any file and attend
any meeting between the buyer and the bidders to keep itself abreast of the
developments. On noticing any violation by the either party, it could take
immediate remedial measures to correct the infirmity. Such a timely
intervention will prevent the whole process from getting vitiated beyond
redemption. In case a proposal suffers from major irregularities, the commission may even recommend its abrogation.
Indian defence procurement
regime enjoys poor credibility. Serious questions are routinely raised about the
sanctity of the process. In addition to affecting the morale of the soldiers
adversely, defence scams stall modernisation of the armed forces. It has taken
the country nearly three decades to bury the ghost of Bofors. It is time India
puts a system in place that is accepted by all stakeholders to be fair and
acknowledged by the environment to be impartial, transparent and objective.*****
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