Online tendering in the army is set to open up its contracts to more companies and bring in much needed transparency. The Indian army’s annual purchases of essential items include wheat flour, medicines, lubricants and automobile spare parts. The annual budget for such purchases runs into several thousand crores. The online purchase, however, excludes arms, ammunitions and defence systems like aircraft, tanks and ships.

“The manual tendering process created cartels, eliminating competition,” said Savitur Prasad, principal integrated financial adviser (army), ministry of defence. Now multiple-vendors participation would be a reality in tenders valuing Rs 25 lakh and less, said Prasad stating that the existing system lacked transparency.

The recent move is in continuation of the Vinod Dhal committee’s recommendations on reforming public procurement. Use of electronic tendering by central ministries and departments was one of the key recommendations of the committee. While the public procurement bill 2012, based on the committee’s recommendations, is yet to be passed by parliament, the public procurement division of the department of expenditure under the ministry of finance has asked central government organisations to adopt electronic procurement. The initial order, however, was not binding in nature.

According to the order any procurement over Rs 10 lakh has to be processed through a central portal: eprocurement.gov.in. The department issued another letter in January reiterating that all procurement above Rs 10 lakh must follow an end-to-end e-procurement system. The letter stated that limit would be brought down to Rs 5 lakh with effect from April 2015 and  Rs 2 lakh with effect from April 2016. 

The defence forces meet their requirements through in-house production and global and domestic market. Arms, ammunitions, aircrafts, submarines and missile defence systems, which come under capital (or say asset) procurement, are purchased through global tendering. This constitutes the biggest chunk of the defence budget, which is more than Rs 2 lakh crore. “But these deals however can’t be finalised through e-tendering as the systems are too complex. Often the contract is given to a company offering best features,” a former defence ministry official said.

The army has ordnance factories where it manufacturers generic arms and ammunition. Electronic and communication equipment are procured from the defence public sector undertakings. The contracts are given to the PSUs directly without open tendering.

The defence forces buy rest of essential items, worth over Rs 10,000 crore, from the domestic market. This comes under the revenue (or say operational) procurement. The army official noted that in two years the entire procurement of essential items might go electronic.  “Until last year, whenever army procured flour, it was mostly bagged by either of the two giant companies: ITC and Shakti Bhog,” the army official said. The army consumes flour worth Rs 400 crore a year. It is now being procured online through the central procurement portal since January this year.

The official said that the situation is not very different in case of lubricants and hygienic chemicals where the competition is limited to two-three private players. 

The mechanical and engineering services (MES) wing, which caters to all three defence forces, has also started using e-procurement platform since early this year. Border roads organisation (BRO), another body under MoD, selects and awards contracts to private construction companies via the central portal. 

The adoption of e-procurement is facing some teething troubles too. Since the defence ministry has its own procurement rules guided by two separate manuals – defence procurement manual for revenue projects and defence procurement procedure for capital projects – the electronic tendering of contracts requires a lot of customisation. Every time the software is changed or tweaked it has to be certified by the STQC, a government  agency to evaluate, audit and certify that e-procurement software is not vulnerable to any security breach.

In 2012, the World Bank suggested 36 changes in the STQC guidelines after assessing various e-procurement solutions on offier in India. The security check is done at various levels: application, data, server and internet. Besides, STQC doesn’t give a performance certificate to indicate compliance at all levels leaving the systems vulnerable to hackers.

While these challenges should get addressed as soon as possible, the other two defence forces – navy and airforce – should also follow suit and adopt e-procurement for at least non-strategic essential items.
 

(This story appeared in the July 1-15, 2014 print issue)