WORKSHOP ON ENFORCEMENT OF
CONTRACT CLAUSES AND TIMELY RECOVERY
ETHICS IN PUBLIC PROCUREMENT
By G. ASOK KUMAR, IAS
CVO,AAI
JAIPUR
23.02.2012
ETHICS
2

Is doing the RIGHT THING

Is the imbibed value system – may vary from culture to
culture, place to place, but there are certain universally
accepted values

Is what money cannot buy. Best when internalised and
comes from within.

Can be forced- but true ethics is doing the right thing,
even when not watched.
GOOD ETHICS
3

Gets the trust of people

Is very important in public life

Carries the burden of the hopes of millions of people,
who expects the public servants to perform their duties
as a trustee

Makes everyones’ life pleasant
PUBLIC PROCUREMENT ?
4

Any procurement made for public / by spending public
money is public procurement.

Procuring works, material, services etc., of the SPECIFIED
QUALITY within the SPECIFIED TIME and at the MOST
COMPETITIVE PRICES in a FAIR, JUST and TRANSPARENT
MANNER is essential in public procurement.

CVC, therefore, maintains a high focus in this area.
PUBLIC PROCUREMENT
5

Public procurement plays vital role in economy / growth

Appxmly. 30% of India’s GDP gets converted into public
procurement contracts.

Departments like Railways, Defence and Telecom use 50% of
their funds for procurement of good and services.

According to World Bank’s estimate, the average bribe to obtain
a public contract is 15% of contract value.

Budget expenditure of AAI during 2011-12 is Rs. 2100/- Crores
and for the year 2012-13 is Rs. 2450/- Crores.
PILLARS OF VALUE OF
PUBLIC PROCUREMENT
6

1. Public Trust: Is the faith the public has in governments that are
created to protect their basic freedoms.

Each citizen has an expectation that government, and each member of
the government, will discharge their duties in a competent manner and
not abuse authority granted to them. Not only does the citizen pay for
these services, but they have relinquished some of their individual rights
and freedoms to ensure that the government has the ability to look after
their well-being. An abuse of authority always is a betrayal of the public
trust and is not tolerated in a democratic society. Thus, public
procurement operations are subject to intense public scrutiny.
PILLARS OF VALUE OF
PUBLIC PROCUREMENT
7

2. Public Service: Government organizations offer varied services
and serve a number of people, a common concern is the need to make
the best use of available financial and human resources. To do this,
public employees serve a unique role in society.

Employees must use their authority without bias.

As stewards of the public trust, and as servants to the public welfare,
procurement practitioners must consistently pursue their professional
standards even at the expense of their personal beliefs.
PILLARS OF VALUE OF
PUBLIC PROCUREMENT
8

3. Justice: Justice is the quality of being just, impartial and
fair in how public procurement professionals discharge their
responsibilities.

Justice is best served when professionals exercise judgment
within established legal frameworks to balance competing
interests among all stakeholders with the explicit intent to
ensure that decisions and actions are proper, fair &
appropriate.
PUBLIC PROCUREMENT……
9

As procurement is prone to corrupt practices, it
has a many effects:

it distorts the market mechanism,

represents a high cost to the procurer and

results in poor quality of goods and services

Erodes public faith.
ESSENTIALS FOR PUBLIC PROCUREMENT
10


Any sound procurement procedure should be based on
principles of ethics, fairness, equity and transparency.
In brief, the canons of public procurement are:

Right Place – Need / scope
Right material - Quality
 Right Time - Time


Right Price - Value for money

Right Vendor – Fairness & Transparency
PREREQUISITES FOR PUBLIC
PROCUREMENT
11
-
-
-
Well documented Works / Purchase Manual with clear
DoP (Delegation Of Powers)
Regular updating of Manual for systematic and
uniform approach
Formulation of project proposal and establishing
need and justification – Techno Economical Feasibility
Studies (TEFS), Comprehensive Bid Analysis (CBA),
Techno-Commercial Studies in terms of payback
period, IRR, Discounted Cash flow (NPV) etc.
PREREQUISITES FOR PUBLIC
PROCUREMENT…
12
-
-
VALUE ENGINEERING – Evaluation of all available
alternatives.
STRs (Specifications and Technical Requirements) –
Broad based enough to encourage competition and at
the same time specific to meet the actual intended use
/ purpose. Not customized and tailor made to suite
select group of vendors that restricts competition.
-
Designs to be optimized - avoid over provisioning.
-
Realistic Estimates based on proper market survey.
PREREQUISITES FOR PUBLIC
PROCUREMENT…
13
-
-
-
TIME IS THE ESSENCE
Timely Decision making.
Timely
commissioning
of
cost
intensive
equipment/facility
Timely rescission of contract on account of delays /
non performance
Systemic Performance
contractor / consultants
Accountability
Appraisal
of
vendors/
Investment in Airport Infrastructure
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Sector
10th Plan
(In Rs. Crore)
11th Plan
(In Rs. Crore)
12th Plan
(In Rs. Crore)
1.
Whole
Airport
Sector
6404
36,371
50,000
Appx.
2.
AAI
3534
12,964
17,500
S.
No.
CONTRACT CLAUSES?
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


Procurements/Projects undertaken by PSUs are
governed by Manuals /Guidelines thus,
resulting in signing of Contract Agreement
with the executing agency / supplier.
Various Clauses stipulated in the Agreement
are essence of the Contract.
The elements of the contract are mutual assent
and consideration.
Contd..
16

Adherence to the Contract clauses in terms of
specifications / making payments etc. as per
agreement are essential for effective Contract
Management.

Non adherence to the Contract Clauses gives rise
to undue benefits to the executing agency causing
losses to the organization and defeats the very
purpose of stipulations.
AREAS OF CONCERN /
VIGILANCE ISSUES
17
Change in scope of work after award of
contract.
Accepting
revision in specification /
payment conditions after award of work.
Allowing extra items at inflated rates.
Contd…
18

Permitting
alternative
makes
without
adequate cost adjustments.

Acceptance of substandard work .

Delay in completion and commissioning of
various
projects
(Cost
overrun
/
Time
overrun). Sometimes doubting the need /
purpose of procurement.
CVC / CTEO GUIDELINES
19
All public procurements are subject to the
compliance of CVC’s / CTEO’s circulars /
instructions.
Circulars / instructions issued by AAI are also
to be followed meticulously for effective
Contract Management:
 CVC circulars/orders – (http://cvc.gov.in/cvc_instruct.htm)
 CTEO’s circulars/orders– (http://cvc.nic.in/CompcirculCTE.pdf)
 AAI Circulars – (http://infosaarthee/Board Member/Planning/
TechInst/Pages/default.aspx ). So far 86 TI’s issued. It is
better to update the Works Manual.
CTEO’S OBSERVATIONS
20

In one work the Board’s approval for Architect Fee was to
be fixed at 5% of the estimated cost or the awarded cost,
whichever is lower. However, at the time of framing the
agreement, the fee was changed to 5% of the actual cost
of the work or the awarded cost, whichever is lower. This
revision
caused
increase
in
consultancy
fee
by
approximately Rs. 24 crores, giving undue benefit to the
architectural consultant.
CTEO’S OBSERVATIONS ….
21

A large area of land in the airport premises
was allotted at a nominal cost to the contractor
for establishing stockyard, which was against
the clarification issued at pre-tender stage of
the work. Undue benefit accrued to contractor
on this account was of the order of Rs.10 crore.
CTEO’S OBSERVATIONS ….
22

Completion Certificates recorded without ensuring the
completion of all the packages of composite tenders.

Higher rates paid to the Contractor compared to the rates
admissible as per contract provisions for substituted
items.

Measurement for steel was made in excess of actually
used and no provision made in the contract for the
ownership of scrap.
Observations-CTE Type
23

Scope of work and design of the structures changed
during execution.

Escalation payments are released by Site engineers
as per agreement clauses timely, but when it comes
to recovery against de-escalation, action is being
taken only after vigilance observation or at the time
of final payment.
Observations-CTE Type…
24

Escalation
payment
made
in
contravention
to
agreement clause.

The lead partner of the JV Consortium is absent in the
site activities and the other in- experienced partner is
executing the work, thereby, causing delay.

EOT cases not processed in time. Penalties not levied
as per agreement provisions.
POINTS TO PONDER
25

What should be the appropriate safeguard against the failure of the
consultant/contractor?

How to make tender document unambiguous?

How to bring uniformity in dealing with the ambiguous provisions
in the tender ?

How to ensure timely completion and commissioning of the projects
and procurement ?

What should be the effective monitoring tool for project
management?

How to enhance co-ordination amongst various Departments of AAI
/ Airports for effective management of contracts.
SOME SUGGESTIONS !
26

Specific penalty clause may be incorporated in
the Consultancy
Agreement to avoid poor
planning / lack of supervision and to increase
accountability of Consultant.

The ambiguous clauses, if any, need to be
referred to NIT approving Authority only for
necessary clarification / decision.
SOME SUGGESTIONS…
27

Realistic time frame for execution of the project to be
considered based on specific site / soil factors prior to
accord of AA & ES.

The AA & ES Authority need to freeze maximum
permissible time frame for the Project.

A separate penalty clause for delay in execution of the
Project need to be specified in the Agreement to avoid
time and cost overrun.
Contd..
28


There should be no major deviation in
scope of work after award of work.
The E & M equipments shall be brought to
site in synchronization with the Civil /
Electrical works to avoid possible
damages/lapse of warranty / Guarantee
etc..
Contd..
29



All records /
meticulously.
files
to
be
preserved
Hindrances need to be recorded properly to
enable scrutiny during sanction of EOT.
OPMS need to be operationalized for
effective monitoring of the projects.
GENERAL GUIDANCE
check points during
execution stage
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 Conditions
regarding Insurance Policies, P.G.,
Labour licence etc. complied with.
 Bank
Guarantees are duly verified
 Recoveries
 Major
are made as per Contract.
Deviations should not be done.
 Mandatory
 Proper
Tests are carried out.
record of hindrances maintained.
AREAS TO BE COVERED IN THE
WORKSHOP
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
Time & Cost Overrun in Projects – Causes and
solutions by ED(Engg.)

Irregularities in Engineering works by GM(Vigilance)

Finance control in Project management by ED(Fin.)

Implementation of Contract clauses by RED(NR))

Panel discussion.
CONCLUSION
32

We must adopt vigilance as an attitude
and do not view it as restrictive and
punitive.

We must learn to integrate vigilance in
our day to day working.
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THANK YOU!
cvoaai@aai.aero