Money Over Matter | Toothless Watchdogs

Independent Monitors don’t have the powers to deal with violations in arms procurement deals

Maj. Gen. Mrinal Suman (retd)Maj. Gen. Mrinal Suman (retd)

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 questions 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 ministry of defence (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 ongoing 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.


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