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Project Report on

“Rationale Procurement”

Submitted by

Sri R.D. Sindikar CCO/CR

Facilitated by

Sri Ravij Seth FA & Sr. Professor (Finance & PPP)/IRITM/Lucknow

Administrative support by

Sri Kishor Mehta CMI/IRITM/Lucknow

1 April 2013

© Indian Railways Institute of Transport Management, Lucknow (Uttar Pradesh)

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A Project Report on

“Rationale Procurement”

Author:

R. D. SINDIKAR IRTS

CCO/CR/CSTM

Indian Railways Institute of Transport Management, Lucknow.

March - 2013

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CONTENTS

S. No. Description of Content Page No.

1. Acknowledgement 2

2. Declaration 3

3. Abbreviations 4 - 5

4. Tendering 6 - 8

5. Single Tender 9 – 13

6. Limited Tender 14 – 15

7. Special Limited Tender 16 - 20

8. Solitary Tender 21 – 23

9. Unsolicited Offer 24 - 26

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ACKNOWLEDGEMENT

I am very much glad to present this project report on “Rationale Procurement”.

I am thankful to Smt. Ashima Singh, Director; Shri A. P. Singh, Dean; and Shri

Ravij Seth, Course Director IRITM for their able guidance in the preparation of this

project.

I am also very grateful to the esteemed faculty members of IRITM and Shri K. C.

Chaudhary, Chief Stores Instructor & Shri S. K. Mali, In-Charge Computer Centre /

ZRTI / BSL for the valuable suggestions and co-operation extended by them during

the period of training.

R. D. SINDIKAR

IRTS

CCO/CR/CSTM

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DECLARATION

“I declare that the Project Report on “Rationale Procurement ” is submitted by me

on completion of course on 31.03.2013 to the Indian Railways Institute of

Transport Management, Lucknow. My report may be used by Indian Railways /

IRITM for official purpose.”

Date: 01.04.2013 Name: R.D.SINDIKAR

IRTS

Place: Lucknow Designation:CCO/CR/CSTM

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Abbreviations

1. AAC - Annual Average Consumption

2. AMM - Assistant Material Manager

3. CMM - Chief Material Manager

4. CORE - Central Organisation for Railway

Electrification

5. COS - Controller of Stores

6. CP - Contract Period

7. Dy. CMM - Deputy Chief Material Manager

8. FRPS - Firm Registration and Performance Section

9. FY - Financial Year

10. IISCO - Indian Iron & Steel Company

11. IP - Interim Period

12. JAG - Junior Administrative Grade

13. JV/TC - Journal Voucher /Transfer Certificate

14. LT - Limited Tender

15. MUF - Monthly Usage Factor

16. NS - Non Stock

17. PAC - Proprietary Article Certificate

18. PHOD - Principal Head of Department

19. PL No. - Price List Number

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20. POL - Petrol Oil & Lubricants

21. PSU - Public Sector Undertaking

22. RDSO - Research, Design & Standards Organisation

23. RINL - Rashtriya Ispat Nigam Limited

24. RO - Receipt Order/Receipt Note

25. SAB - Stores Account Branch

26. SAG - Senior Administrative Grade

27. SAIL - Steel Authority of India Limited

28. SLT - Special Limited Tender

29. SMM - Senior Material Manager

30. ST - Single Tender

31. TC - Tender Committee

32. TISCO - Tata Iron & Steel Company

33. WMS - Workshop Manufacturing Suspense

34. ZBB - Zero Base Budget

∗ ∗ ∗

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TENDERING

Objective of Tendering:

Basic intention of tendering is economic purchase through adequate publicity.

Time is the basic factor of determining the mode of Tendering. The primary aim is

to obtain the best value for the money spent, through most effective methods for

keeping down the Rate. An exception to this rule is based on practical

considerations in order to avoid delay and for purchases (works) of comparatively

small value. The objective of the purchase policy is to buy the required material in

the right quantity from the right source at the right time and price to obtain the

maximum value for the expenditure of Railways. Tendering is adopted to procure

material at the most competitive rates and to eliminate chances of undue favour to

any supplier. Through Tendering the best supplier is chosen without any bias, by

fostering the spirit of competition. (A major disadvantage of tender buying is that

Administrative lead time for order placing will be longer compared to other

systems).

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What is Tender?

Tender is an offer to comply material or work within a fixed period at a fixed Rate.

The canons of Financial Proprieties not only suggest that the expenditure Prima

Facie must not exceed the situation demands, but also expenditure must not

benefit a particular person or section of the community, hence Tendering is

adopted to obtain the cheapest economical and competitive offer as an initial

control over capital investment. Invitation of competitive Tenders for procurement

of goods/execution of works is well established system followed by Railways to

achieve the economy and efficiency depending upon the nature of goods, sources

of supply, scope of the work and other features. The General Manager may also

decide not to call for tenders of any category, in case where sufficient reason exists

to indicate that it is not in the Public interest to call for tenders. The reason for not

calling for the tenders must be recorded in written and communicated to the

FA&CAO. Tender notices should be advertised only in the dailies / periodicals

authorised by the Directorate of Advertisement and Visual Publicity, Ministry of

Information and Broadcasting. In addition, these notices should also be published

in the Indian Trade Journal. The question of choosing the dailies for purpose of

advertisement is left to the discretion of the unit to ensure effective publicity and

coverage. Sufficient time not less than one month should be given for submission

of Tenders barring only for most exceptional cases and circumstances. In addition,

Railways should establish the system to facilitate downloading of the Tender

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Documents by the prospective tenderers on putting on the tender documents for all

open tenders invited for procurement of stores on the website after down loading.

∗ ∗ ∗

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SINGLE TENDER

Single Tender is a system of Inviting quotation from only one firm for supplying

material. Single Tender is invited for purchasing Proprietary Article which does not

have any alternate to use in lieu of it or in the below mentioned conditions.

Where

A. No other make/brand will be suitable.

B. Only one firm manufactures or is stocking the item.

C. Similar article is not manufactured nor sold by other firms which could be

used in lieu of it.

D. Requirement of the store is so urgent and interim period is so short that no

other modes of tendering seem to be suitable and procurement of the item is

to be made from the sole supplier through Single Tender which had

previously supplied such item.

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Invitation of Single Tender:

On receipt of Proprietary Article “C” Certificate COS can invite Single Tender upto

Rs. 15 Crores, CMM upto Rs. 1.5 Crores, Dy. CMM – HQ upto Rs. 30 Lakhs SMM

– HQ upto Rs. 05 Lakhs and AMM – HQ upto Rs. 02 Lakhs in each case.

Where Proprietary Article “C” Certificate is received Dy. CMM – Depot can invite

Single Tender upto Rs.10000/-, SMM – Depot upto Rs. 5000/- and AMM – Depot

upto Rs. 2000/- in each case. Necessary Tender Committee is constituted for

finalization of Single Tender.

In case where no other make / brand is suitable and Proprietary Article “a”

certificate is issued COS can invite and accept single Tender upto Rs. 05 Lakhs,

CMM upto Rs. 03 Lakhs, Dy.CMM – HQ upto Rs. 02 Lakhs, SMM – HQ upto RS.

01 Lakh and AMM – HQ Rs. 50000/- in each case. Single Tender for Non-PAC

items can be invited and accepted by COS/CMM without Finance Concurrence in

normal circumstances up to Rs. 03 Lakhs in each case. Invitation of Single Tender

for non-PAC item should be exercised not below JAG level officer. Invitation of

Single Tender requires personnel approval of COS/CMM. In emergencies affecting

Repair, maintenance, out turn operation, etc COS/CMM can invite Single Tender

up to Rs. 05 Lakhs in each case. Emergency should be certified for stock items by

JAG level officer valuing upto Rs. 50000/- and by SAG level officer for purchase

above Rs. 50000/-. In case of non-stock item price reasonability is to be found.

Single Tender for Steel & POL:

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COS can invite and accept Single Tender for purchasing Steel items up to Rs. 03

Crores and CMM up to Rs. 02 Crores from M/s. SAIL, TISCO, IISCO,RINL. In this

case 100% advance payment in cheque is made on confirmation of availability of

material in the Stock yard. In this case entering into the formalities of Tender

Committee is not necessary. COS can invite and accept Single Tender for oil and

lubricants form the public Sector undertaking upto Rs. 03 crores in each case and

CMM upto Rs. 02 Crores in each case. In this case 100% advance payment

proforma invoice is made for which prior concurrence of finance is necessary and

Tender Committee need not be formed to finalise the case. Precaution is to be

taken that the prices are government administered.

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Single Tender for Developmental Items:

COS can invite and accept Single Tender for developmental items up to Rs. 05

Lakhs in each case, CMM upto Rs. 03 Lakhs and Dy.CMM – HQ up to 02 lakhs in

each case. While submitting the indent address and details of the source must be

mentioned including the remark of developmental item to be purchased on Single

Tender. The Proposal of Purchase of developmental items should have approval

of PHOD of concerned Department and concurrence of FA&CAO.

Advantages of Single Tender:

The only advantage of Single Tender is finalisation of the same at a shortest

period, though tender committee is formed to finalise the same. In emergencies

where elimination of competition is unavoidable and additional cost involved is

unavoidable, such tender is invited. But this tender completely eliminates

competition and leads to higher price. Consequently negotiation becomes a matter

of routine. The Proprietary Article Certificate should not be accepted by Purchase

office as a matter of course and indenting officer should be advised to carefully

examine the merits of each case before signing it.

In case of purchasing stores through Single Tender (from Single Monopoly

Source), the Railway Administration should endeavor to prevail upon the firm to

accept the Railway’s Book Examination Clause. Where the rate quoted by the firm

seems not reasonable, and Railway cannot persuade the firm to reduce the price

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through negotiation, the Book Examination Clause is invoked. Further, as

suggested by the department of Supply, imports can be sorted at cheaper rate to

discipline any monopolist supplier. If the requirement is operationally very urgent

and cannot wait the delayed procedure of invoking the Book Examination Clause,

the tender may be finalised for a minimum quantity, duly reporting the position to

Railway Board. In such cases possibility to import for meeting the requirement of

future contract period should be considered, in consultation with the Railway Board.

The proposal should have approval of COS and concurrence of FA&CAO. As a

means to eliminate monopoly, Railways have to invite Open Advertising Tender in

every third year though PAC is submitted to the item.

∗ ∗ ∗

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LIMITED TENDER

Invitation of Tenders from only a minimum number of Registered Firms for

submission of Tender to comply material, for which they are registered, is known as

Limited Tender. The registered firms of a Trade Group (FRPS) for a registered

value slab are invited for submission of tenders. The registered firms are invited in

rotation for tendering. Minimum of 08 to 09 firms are invited for submission of

tenders. Further the stores head quarter officers are free to approve panel of even

more firms for invitation of Limited Tender. The last successful tenderer/s must

invariably be invited for tendering. Limited Tender is invited for the purchase value

up to Rs.1000000/- in each case. The Safety and vital items valuing up to

Rs.1000000/- are generally purchased through Limited Tender from the reliable

and registered sources. In the situations where the Interim period is short and

stores are to be procured urgently, even the general items are purchased through

Limited Tender on inviting the firms which had supplied the item successfully in last

year/s. In case of emergencies for maintenance purpose stores are purchased

through Limited Tender. In these cases the Stores Head Quarter officers are free

to choose the mode of tendering. Finance concurrence is not necessary for

invitation of Limited Tender. COS, CMM and Dy. CMM - HQ can invite and accept

Limited Tender up to Rs. 10 lakhs in each case. SMM - HQ can invite and accept

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Limited Tender up to Rs. 05 lakhs and AMM - HQ upto Rs.02 lakhs in each case.

Tender committee is not formed to finalise the Limited Tender.

Criteria for Invitation of Limited Tender:

жжжж Nature of Item : Safety or Vital item

жжжж Sources : Registered(FRPS)Sources

жжжж Interim period : Shorter

жжжж Value of Purchase : Up to Rs. 1000000/-

жжжж Circumstances : Emergencies

Invitation of Limited Tender up to Rs. 1000000/-

Safety or Vital item Up to Rs. 1000000/-

Emergencies General item Up to Rs. 1000000/-

Shorter interim period General item Up to Rs. 1000000/-

∗ ∗ ∗

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SPECIAL LIMITED TENDER

Tender invited from a fewest number of chosen firms specially Registered to supply

Vital as well Safety items. The Firms are picked up out of the approved List of

suppliers, which are capable of executing supply of Safety-vital items within a

shortest time. The credential of the firm is verified. The firms may be other than

those in the approved list of Suppliers.

A list of special items are chosen in the coordinating committee meeting constituted

by COS, FA&CAO (Coordination) and PHODs of consuming Departments. A list of

items of critical nature is drawn up where the quality is of paramount importance

and the names of the firms considered fit to supply the items in acceptable quality

are also mentioned. The list is put up to GM for approval. In order to ensure

quality and reliability of stores of vital nature, from the angle of Safety, Railway

invites Special Limited Tender on the drawn up Principle with approval of General

Manager. The list is put up to GM for one Time approval and procurement during

the validity of the list will be through Special Limited Tender from the firms

mentioned in the List. Special Limited Tender is invited for the estimated value

above Rs. 10 Lakhs.

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Circumstances for invitation of SLT:

A. Where sufficient reason exists that it is not in the Public Interest to call for

tenders by advertisement.

B. Demand is so urgent that any additional expenditure involved by elimination

of Open Advertising Tender must be incurred.

C. Special Limited Tender is also invited for the proprietary Article where it is

not possible to certify that similar article is not manufactured nor sold by any

other Firm/s which can be used in lieu of it.

D. Supply of specialized nature of items as approved by PHOD personally.

E. Items required due to established urgency where Open Advertising Tender is

not a useful mode for Tendering.

F. Sophisticated High-tech Safety/Vital items having limited Sources of supply,

where the items are to be procured only from approved Sources of Supply.

In this case Panel of Firms approved by RDSO/PSU/CORE is also to be

invited for tendering.

G. In case of Re-tendering Special Limited Tender is invited instead of Open

Advertising Tender due to receipt of a Solitary Tender or in case of Risk

Purchase where the interim period for recoupment on the date of retendering

is very short as compared to the original one.

H. In Emergencies where the value of purchase is above Rs. 10 lakhs, the time

left for obtaining supply is very short, Special Limited Tender is invited after

written approval of COS/CMM, for the quantity mentioned in the approval.

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Where emergency is mentioned in writing, concurrence of Finance is not

necessary.

I. Generally Limited Tender is invited for Estimated or Purchase value below

Rs. 10 Lakhs, but where the value of offer received against the Limited

Tender is more than 15% of the normal value, ex-post facto sanction of GM

is required to accept in the lines as Special Limited Tender. This requires

concurrence of Head Quarter Finance (SAB); also requires constitution of

Tender Committee for finalisation of the tender.

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Financial Aspects of SLT:

Finance concurrence as well as sanction of AGM should be obtained for invitation

of Special Limited Tender, both for Stock and Non-stock items. Such formalities

are not required if the panel of firms have been approved by GM as a standing

measure, but approval of the official competent to purchase has to be obtained.

Purchase proposal detailing the circumstances and the necessity for going in for

Special Limited Tender should be initiated and be approved by FA&CAO. After

concurrence, personal approval of PHOD is obtained. Special Limited Tenders

must not be less than three or four. Finalisation of Special Limited Tender requires

constitution of Tender Committee.

GM is empowered to invite Special Limited Tender upto Rs. 50 Crores, AGM upto

Rs. 15 Crores, COS upto Rs. 05 Cores, CMM upto Rs. 01 Crore and Dy.CMM upto

Rs. 30 Lakhs in each case both for Stock and Non-stock items.

Even on first call of Special Limited Tender if “Single Offer” is received, then COS

is competent to accept the same valuing upto Rs. 15 Crores, CMM upto Rs. 1.5

Crores and Dy.CMM upto Rs. 30 Lakhs. Full justification must be recorded in

writing, provided that enquiry had been issued to the last successful firm/s or firms

likely to supply material. The Tender received is technically suitable and the price

obtained is reasonable. In this case if the “Single Offer” received against Special

Limited Tender is to be accepted due to Urgency, then urgency (nature of urgency)

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should be certified by CMM. For Non-stock items “Urgency Certificate” should be

obtained from the Indenting Department signed not below rank of SAG level officer.

∗ ∗ ∗

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SOLITARY TENDER

Receipt of only one tender on invitation of Open Tender is known as “Solitary

Tender”. This Tender is also known as “Single Offer” or “Only Tender”. As only

one Tender is received in response to open tender, hence it should not be

considered, rather tenders are re-invited. If single offer is received in response to

repeated invitation of tender, then the offer may be considered if the Rate of the

Solitary tender is reasonable and the tender is technically suitable. It is considered

in the lines as the Single Tender where the following points are to be viewed:

1. Tender for the item is invited repeatedly sending enquiries to a several

number of firms, but only one offer is received. There is no alternate as

remedial action, but to consider the offer under normal purchasing powers,

subject to certification of rate reasonability.

2. The lead time on the date of receiving the offer is quite short and re-tendering

is not possible at such a shortest period.

3. The demand is so urgent that stores are to be procured immediately to avoid

holding up of work. In this case “Urgency Certificate” should be issued by

JAG level officer for the value of purchase upto Rs. 50000/- by SAG level

officer for value above Rs. 50000/-. This initiative is taken where it is satisfied

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that retendering is expensive and issue of the tenders for the second time

would not yield better results.

4. The subject firm of the solitary offer had successfully supplied accepted

stores to the same specification where the supplied stores are of better

quality. In case of procurement of quality spares if the firm is in the short list

of approved firms, then the offer may be considered in the lines as the

Special Limited Tender keeping the other aspects of Tender consideration in

view.

5. Being a PAC item the same was previously purchased through Single Tender

and as a policy to create transparency in tendering, open tender is invited

and the Solitary offer is received. In such case the Tender may be

considered as the firm is the previous successful tenderer where the time

factor is viewed.

6. Nature of item is a factor for invitation and consideration of Tenders. In case

of Safety or Vital item, the choice of source depends upon the reliability of

supply of assured quality. In this case the Solitary Tender is accepted only if

limited tender enquiry had been issued to firms who have supplied or are

likely to supply the material and the price obtained is reasonable. Purchase

officer exercises the normal power of acceptance in case of Solitary tender.

∗ ∗ ∗

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UNSOLICITED OFFER

Offer received from an unregistered firm on invitation of Limited Tender is known as

“Unsolicited Offer”. The firm is an uninvited one and it does not have Registration

with Railway for supply of such material for which the tender has been invited. The

Unsolicited offer is rejected straight way. But in certain circumstances the

unsolicited offer is also considered basing upon technical suitability of the Tender

and its Rate reasonability. The rate of the tender must be properly worked out.

Where the solicited offers are not suitable and the unsolicited offer is suitable and

there is sufficient ground to accept the unsolicited offer. “EDUCATIONAL ORDER”

can be placed on the firm that submitted unsolicited offer. Consideration of

unsolicited offer is also treated as a means of developing Source.

For consideration of unsolicited offer the following points are to be checked.

A. Rate is properly worked out and the Rate is reasonable.

B. The Tender is technically suitable.

In case of two packet system the Technical Offer must be opened first for

confirming technical suitability. Then the offer bearing the Rate must be opened.

Though the unsolicited offer is not considered, still the same is opened like other

Tenders.

Consideration of Unsolicited Offer:

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I. Where Railway Administration is badly in need of an item for Stock or use

which is not available in the Market or item is of Monopoly nature. Such store

is purchased through a dealer or firm which is able to supply the same even

the offer of the firm is unsolicited one.

II. Where the approved sources are not adequate and it is desirable to develop

more sources for bringing in more competition or improvement in quality.

III. Where the rates received in the unsolicited tender is lower than those

applicable to approved sources and where unsolicited tenderer is having

potential for supply of quality material and is having infrastructure of plant and

machinery and testing equipment as per the quality assurance programme.

IV. In some of the cases when it becomes very difficult to obtain supply of any

specific material and if any Unsolicited Offer is received then that can be

accepted after the due permission of Authority Competent.

However in a very special case only Unsolicited Offers are accepted and an

agreement is also framed out for this purpose. All other rules are also followed in

this respect. On consideration and prior to acceptance of the Unsolicited Tender

the Capacity and Capability of the firm offering the item is to be confirmed.

∗ ∗ ∗