Unhappy IT firms want more clarity from govt

Several IT majors want the government to be clear in its requirements for e-governance projects and not stop payments

Pratap Vikram Singh & Ankita Lahiri | January 1, 2014



Many Information Technology (IT) companies are unhappy with the way e-governance projects are being executed under the public-private partnership (PPP) model. The less than satisfactory implementation of the projects and lack of timely payments, they claimed, have started negatively impacting their cash flows. Governance Now spoke with several experts from industry and government to understand why the private sector is so put off by the experience. It seems that both the government and IT companies are equally to be blamed for the current mess, despite several examples of successful execution of e-governance projects in the PPP mode.

The mission mode project of the ministry of corporate affairs, MCA 21, is one such project that could have been used as a blueprint by both the government and private sector. In MCA 21 the ministry appointed an empowered committee that met regularly to iron out discrepancies and challenges in the execution. “The ownership and commitment shown by the ministry made it easy for us to execute the project on time. The payments, too, were regular,” says Tanmoy Chakrabarty, vice president and head, government industry solutions unit, Tata Consultancy Services, which was the system integrator for the project.

However, the scenario with projects being executed by states and other central ministries is different, bedevilled as they are by twin challenges: of companies resorting to aggressive bidding and governments frequently changing requirements, delaying approvals of work and payments. “Yes, both the government and the industry are responsible,” said Sanjay Jaju, IT secretary of Andhra Pradesh. “But it’s also that we are not getting more than two to three participants during the bidding.”

Due to the frequent delays in payments, only companies with deep pockets could sustain themselves. “The exact specifications and clearances from the government did not come on time. This increases the cost for the private partner,” said S Chandrasekhar, group director, government affairs and public policy of Microsoft. “If every quarterly payment becomes a struggle and does not happen regularly cash flows get affected significantly,” stated Vivek Sharma, general manager and business head, government vertical, Wipro. The government agencies don’t understand cashflow, Chakrabarty said. “As system integrators we have to buy equipment from OEMs (original equipment manufacturers). We have to pay them upfront. Now if payments don’t come on time we suffer,” he added.   

The delayed payments in the projects related to the restructured acclerated power development and reforms programme (R-APDRP) have forced mid-size companies to close their shops. Spanco, which was executing the project in states including Haryana and Bihar, is one such example. “Under the project unless you go live – which happens town by town – with the last city, you will not get the payments. There is a three-year chasing of outstanding payments,” Chakrabarty said. There are penalties if the vendor fails to deliver on time. But there is no provision for compensating the vendor for delayed payment, he added. “The trust between the government and industry is at an absolute low. The companies are absolutely disinterested in participating in projects,” said Chakrabarty.    

In several cases the government doesn’t have a clear understanding of what they want to do in the project. “Even after the software requirement specification (SRS) has been finalised, the government agencies ask the vendor to redo the whole thing, which increases cost for the vendor,” admitted Jaju. Ownership and partnership are alien words, complain industry experts. The suspicion level is such that officials refrain from signing the work completion reports. “No one wants to take responsibility. The file keeps moving. Officials refrain from signing whether it is a SRS, or application development, infrastructure delivery, network,” said Chakrabarty. Private players also face issues with getting approval for final acceptance test (FAT). In place of approving the FAT when the work has been completed, new elements – which were not stated in the project documents – are added. So the goal post keeps moving, complain industry veterans.          

Prakash Rane, founder and managing director, ABM Knowledgeware Ltd, noted, “No proper calculations are done on the return of investments for the private players. The viability of a project has to be studied first by the government.” Chandrasekhar added that the bidding process, along with the final decision of the tender becomes so long that for the relatively smaller companies the project becomes financially unviable even before the implementation stage commences.

Citing the example of the Passport Seva Kendras (PSK), Chandrasekhar said, “At the time of bidding the bidders did not get to see the data centres. Once the tender was awarded to Tata Consultancy Services (TCS) they found that the data centres were not suitable. Then there was a delay in running the project.” Only a company the size of TCS could have implemented the PSK project, agreed experts.

The business model in a public private partnership is based on the shared responsibility and gain. But several times, the experts said, the agreement is made in such a manner that either it is in the favour of the government or the private partner.“There is no balance. The PPP model has not yet reached a stage of stabilisation. The government does not want to lose control,” said Rane. Chandrasekhar added that the government still treats the vendor as a vendor, and not as a partner.  

However, many a times the industry too is on the wrong side. According to experts there are instances of over-commitment from the private players. Irrespective of their size and strength, the companies bid for large and complex projects, eventually failing to deliver. Several times the mid-sized companies resort to aggressive bidding to grab the project. Due to lower margins, companies compromise on the quality of solutions and manpower, added experts.

Aggressive bidding coupled with delayed payments has proven detrimental for midsized companies. “There are companies who do not have due diligence towards the quality of the project. They quote a low price in order to secure the project,” admitted Chandrasekhar. He, however, added that the government should take greater responsibility in detecting such companies.

Shutting down of Sai InfoSystems is one such case. The company grabbed two major projects from the government – the surveillance project of the Maharashtra police and an e-governance project of the department of post. The company, which made the lowest bid, just didn’t have enough resources and couldn’t deliver. The bidding for setting up common services centres, CSCs, for which companies made their bids in negative, is another classic case of over-enthusiasm shown by the industry.  “In cases of negative bidding, the business entities have grossly misunderstood the concept of the business delivery model. Or they jump to conclusions too early,” said AM Parial, chief executive officer of Raipur-based CHIPS, a subsidiary of the Chhattisgarh government.

According to a senior government official from Andaman and Nicobar, many times the private players put inefficient human resources on government projects. This problem is not just confined only to the small and mid-size companies but also extends to some of the largest IT companies.

“These companies do not have an internal monitoring mechanism to oversee the progress of work. As result we are suffering,” he said, while requesting non-disclosure of the names of companies. Of late a lot of stress is being put on the outcomes by the government agencies. In terms of SLAs making project operational is increasingly becoming obsolete. Now the focus is shifting to achieving the end-objective. “In linking the project payments with the outcome, the government agencies are putting stringent SLAs and legal clauses. This has increased the risk of payment recovery for vendors. Hence companies are now more cautious in participating in a project,” said a PwC consultant.        

Experts contend that to improve the situation the government has to share equal responsibility and ownership. “The provision for timely payments should not only be embedded in the RFP but also the behaviour of government personnel,” said Chakrabarty.  “The focus should be implementing the international benchmark of contracting and increasing governments spending on IT.”     

Ashish Sanyal, former director with department of electronics and IT (DeitY), said the current bidding process would become more transparent if the bid evaluation process is adequately explained in detail either in the RFP or in the bid document.

(This story appeared in the December 16-31, 2013 print issue)

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