PROCUREMENT POLICY DELEGATION OF FINANCIAL POWERS TENDERING PROCEDURE

PROCUREMENT POLICY, DELEGATION OF FINANCIAL POWERS & TENDERING PROCEDURE IN ORDNANCE FACTORIES 1

PROCUREMENT POLICY IN ORDNANCE FACTORIES • TO PROCURE WORK, MATERIAL, SERVICES • OF THE SPECIFIED QUALITY • WITHIN THE SPECIFIED TIME • AT THE MOST COMPETITIVE PRICES • IN A FAIR, JUST & TRANSPARENT MANNER • RESPONSIBLITY AND ACCOUNTABILITY 2

DELEGATION OF FINANCIAL POWERS • New Management Strategy • Decentralization of decision making process to increase efficiency and effective utilization of resources by actual operators • Responsibility and accountability 3

LEVEL-I GM LEVEL-II AGM LEVEL-III LEVEL-IV 5 CRORE 1 CRORE CAPITAL CIVIL WORKS FOR NON 1 CRORE PRODUCTION BUILDINGS NIL CAPITAL CIVIL WORKS FOR AMENITY BUILDINGS AND RESIDENTIAL ACCOMODATION REVENUE CIVIL WORKS 1 CRORE NIL 0. 5 CRORE 0. 1 CRORE PERIODICAL SERVICES FULL 1 CRORE P&M 1 CRORE Full – for purchase from DGS&D under Rate/ Running contract NIL Procurement of stores against 20 CRORE LTE/OTE or Rate / Running contract placed by DGS&D or OFB or from M/S Rosoboronexport, Russia. Procurement of Stores (i) Of 1 CRORE proprietary articles on single tender, (ii) From single known source, (iii) Where resultant single acceptable offer is received against LTE/OTE Procurement of stores against ab- 5 LAKHS initio single tender. 5 CRORE 10 LAKHS 50 LAKHS NIL Placement of Development orders. 5 LAKHS NIL Direct Purchase of Steel & Alloys from Public Sector 5 CRORE 10 LAKHS CIVIL CAPITAL CIVIL WORKS FOR PRODUCTION BUILDINGS Procurement, modification and/or re 25 CRORE -conditioning of P & M through LTE/OTE under RR and NC Procurement, modification and /or 1 CRORE re- conditioning of P&M on single tender/ resultant single tender or proprietary items under RR and NC. STORES FULL 4

The Basics • Capital Procurement: • Expenditure with the objective of increasing assets • Primarily bears first charge for first construction • Costing more than Rs 10 lakhs and with a life of 7 years as per GFR. • Procurement procedure documented in DPP, Guidelines for Procurement of P&M in Ordnance Factories etc. • Revenue Procurement: • All subsequent charges for production, maintenance and working expenses • For items and equipments to maintain and operate already sanctioned assets • Procurement procedure documented in DPM, OFB procurement manual 5

ACCEPTANCE OF NECESSITY Assessment of physical requirement of resources with respect to targets fixed and budget availability • Purchase of stores must be made • in the most economical manner • in accordance with definite requirements • Stores should not be purchased in small quantities. • Stores should not be purchased much in advance of actual requirements which will result in locking up of capital • Elements: • Vetting of estimated requirements / SHIS • Vetting of estimated cost • Mode of tendering and source of procurement • Availability of funds and head of account. 6

ACCEPTANCE OF NECESSITY. . contd • For scaled items utmost care to be taken to incorporate: • Available stock • outstanding dues/supplies • Past consumption patterns • average life of equipment and spares • Clubbing of requirements • For one time purchase for projects or capital equipments • Actual requirement usage • Rate of return • Obsolescence factor • Confirmation to latest technology and specifications 7

ACCEPTANCE OF NECESSITY. . contd • Estimated cost is the most important element of AON. • Basis of estimation: • L. P. P. • Budgetary quotations from established / registered vendors, • Assessed cost by specialist officer, in case of non-standard giving an objective cost break-up, etc. • Informal enquiries with vendors should be avoided • Estimated cost is often inflated and prepared in perfunctory manner, escalating at a uniform rate without assessing market trends which results in an acceptance and payment of higher prices. • Budgetary provision / availability of funds and head of account are to be clearly assessed during acceptance of necessity. • Mode of tendering, as also sources of procurement i. e. from trade or P. S. U. s or from import, to be clearly decided at this stage. 8

Tendering Modes • PAC • Items/equipments that are proprietary products of manufacturer: specifications not available to others to manufacture • PAC issued to OEM by user • PAC valid for one year from date of issue. • Single Tender Enquiry: • Invitation to one firm • For non PAC items can be resorted to on grounds of urgency, operations and technical requirements • Reasons must be recorded • Reasonableness of rates must be determined 9

Tendering modes. . contd Limited tender enquiry • To be adopted when estimated value of procurement is below Rs 10 lakhs and sources of supply arewell known; new source unlikely • List of credible suppliers; competition to be encouraged • Web based publicity • Sufficient time to be allowed to vendors to quote Open tender enquiry • Preferred mode for common use items of generic or commercial specifications, adopted when estimated value of procurement is above Rs 10 lakhs • Wide publicity through advertising media, internet • Four weeks allowed for submission of bids. 10

Vendor Selection • Selection and registration of firms/suppliers and their evaluation must be clear and transparent. • Users required maintain a list of approved vendors / contractors • Prequalification necessary to bring competent contractors into competition with technical & financial capability required for the particular procurement. To be done on the basis of : • Experience and past performance on similar contracts • Capabilities with respect to personnel, equipment and manufacturing facilities • Financial standing through latest I. T. C. C. , Annual report (balance sheet and P & L account) of last three years. 11

Vendor Selection. . contd • PQ evaluation criteria must be incorporated in the bid documents in clear and unambiguous terms • Prepare the PQ criteria specific to the requirement of the work. • Evaluate the bids exactly as per the notified criteria. 12

Specification/QRs • Detailed QRs for the item to be procured should indicate • Material composition • Physical and performance parameters • Tolerances if any • Manufacturing processes where applicable • Test schedule • Preservation and packing • QRs must be finalized before tendering. • No waiver or modification of QRs allowed after issue of TE. 13

Bid system • Single bid or two bid (for T/P, IT and communications systems, turn key projects) • Two bid system: techno-commercial and price bids are called separately. • The techno-commercial bid contains all terms and conditions including commercial terms except price. • Technical bids will be evaluated by T. E. C. • Price bids of only technically acceptable offers are to be opened to ensure an objective evaluation of tenders. • Single stage two bid system is followed in MOD and widely prevalent, being most transparent. • In case of two-stage two bid system, price/commercial bids are called from only technically acceptable vendors after technical evaluation. 14

Preparation of tender documents Stipulate all prevailing standard conditions, Govt. policies: • Eligibility : registration with DGQA, OFB etc • Clarifications on bidding documents: • Amendment to bidding documents: can be done before date of submission of bids • Bid validity: 90 days for single bid and 120 days for two bid tender • Late bids • Modification and withdrawal of bids: can be done before deadline for submission of bids • Clarification of bids: no change in price or substance permitted • Agents of supplier: one agent cannot represent two suppliers 15

Preparation of tender documents. . contd Stipulate all prevailing standard conditions, Govt. policies: • Preliminary examination: Completeness of bid and substantially responsive bids • Evaluation of substantially responsive bids: On basis of prices offered • Award criteria: Meeting all technical and commercial conditions and lowest 16

Preparation of tender documents. . contd Special conditions: • Delivery schedule and place: Clear and unambiguous • Payment terms and paying authority • Security Deposit: @ 10% (max) of the total value of each contract within 20 days of the receipt of acceptance of tender. • Liquidated damage: recoverable @ 0. 5% of value of undelivered goods for each week or part thereof, not exceeding 10% of the outstanding contract/supply value • Earnest Money Deposit: @ 3 % of the estimated value of the tender and may not exceed 5 %. EMD forfeited, if the tenderer withdraws or amends, impairs or derogates from the tender in any respect within the period of validity of his tender. • Fall clause 17

Preparation of tender documents. . contd Special conditions: • Risk and expense purchase: Supplier liable to pay additional amount as compared to original contracted amount. Difficult to enforce. • Option Clause and repeat order: Right to vary quantities at same rates and terms within delivery period: Increase/decrease upto 100% of quantity specified provided there is no downward clause. • Force majeure: Need not be included in TE • Price Variation Clause: when included items and formula on which the price variation is based should be clearly spelt out indicating the base price of the raw materials, etc. , on which variation is to be allowed 18 • Arbitration: Must indicate provisions for appointing arbitrator.

Tender Invitation and Receipt • Prefer open tendering as far as possible • In case limited tenders are resorted to, prepare a panel of contractors/ vendors in a transparent way. • Ensure adequate & wide publicity: Upload NIT & tender document on web-site, even in case of limited tenders. • Conduct pre-bid meeting • to bring clarity regarding sprit of various provisions • to bring necessary modifications , if required. • Make suitable arrangement for receipt of sealed tenders at scheduled date and time through conspicuously located tender boxes. • For bulky tender documents, keep provision in tender documents, for submission of bids by hand to designated officials 19

Tender Opening • Tenders to be opened by Tender opening Committee in presence of firms or their authorized representative at particular date and time, specified in T. E. • Each tender to be numbered serially, initialed and dated on first page. Prices, important terms and conditions etc. should be encircled and initialed by tender opening officers / committee. • Each page of the tender should also be initialed with date and particularly, alterations in tenders made by the firms, to be initialed. • In two bid system, only technical bids to be opened first. Sealed commercial bids should be initialed by BOO • Late tenders, delayed tender offers not to be considered at all. • Board of Officers should not be connected with procurement activities at particular date and time specified in the tender enquiry. 20

Tender Evaluation • Technical evaluation: – Whenever a two bid system is followed – Evaluation by a Technical Evaluation Committee- IFA not part of it – To ascertain conformity of technical bid with technical specifications sought – To bring all bidders on a level playing field in qualitative requirement – Report to be submitted to CFA for approval. • Commercial evaluation: – Evaluation by a Tender Purchase Committee- IFA a part of it – Comprises of Users, technical member, CFA rep and IFA – PNC/TPC shall maintain a self-speaking record of its work in chronological manner. – Minutes are to be page numbered and signed – Issues to be seen: • Duties and taxes • Delivery period and delivery compliance • All inclusive cost on delivery. 21

Negotiations • Negotiations should be held in rare and exceptional circumstances where rates are not found reasonable. • Negotiations with LI/ techno-commercially acceptable vendor only: – When there is inadequate competition in LTE. – Wide variation between quotes of L 1 and L 2 and others – Wide variation between estimated cost and tendered cost. – In case of proprietary items procured on single tender where reasonability of rates cannot be justified. – Where all tenders/firms quoting one make but different prices and terms and conditions 22

Negotiations. . contd • CVC guidelines: – Post tender negotiations are banned with immediate effect except with L 1 – There should not be any negotiations. Exceptions will be only in the case of proprietary items or in items with limited source of supply. Counter offers tantamount to negotiations. – When the quantity to be ordered is much more than what L -1 alone can supply, the quantity order may be distributed in such a manner that it is fair, transparent and equitable. 23

Tender Evaluation and Award of Work Concern areas: • Evaluate tenders exactly as per notified criteria • Timely decision within validity period • Comply with instructions/guidelines of CVC on negotiations • Ensure that conditions/specifications are not relaxed in favour of vendor to whom work is being awarded. • Ensure that L 1 is not ignored on flimsy ground. • Ensure that supply order is placed within justified rates • Incorporate all standard terms and conditions, rates, denominations and specifications as per TPC’s decision. • Do not deviate materially from any tender enquiry condition • Match agreement with the tender document, properly document, sign and seal • Ensure acceptance of contract/supply order by vendor. 24