Lure of govt contracts

Lure of govt contracts
Business Standard, December 9, 2009, Page 8

While the state has to act transparently in awarding tenders, it has more elbow room in the matter.

M J Antony / New Delhi

Though the government is not perceived as a good business partner, yet its contracts are attractive on many counts. There is more elbow room for making profit. Therefore, agreements for infrastructure and services are coveted. Many of them, however, land in the court because the government has much more leeway in the selection and award of tenders. It is not necessary always to call tenders or choose the lowest bidder. That is where the wrangle starts.

Two judgements of the Supreme Court, delivered in recent weeks, deal with the issue of government contracts. The complexity and intensity of the disputes can be gauged from the fact that in both the cases, the apex court reversed the judgments of the respective high courts.

The first appeal involved the tender floated by Prasar Bharti for the supply of two transmitters (BECIL vs Arraycom India Ltd). Prasar Bharti found that BECIL’s bid was the lowest and accepted it. However, Arraycom moved the Delhi High Court, which quashed the award. The appeal then came to the Supreme Court which found that Arraycom’s bid was “ambiguous” and, therefore, Prasar Bharti was right in rejecting it.

The apex court stated that in administrative matters, the scope of judicial review was limited and it should step into such controversies with due caution. This has been stated categorically in a leading case, Tata Cellular vs Union of India (1966).

At the same time, there should be transparency in contracts to be given by government authorities, statutory bodies or instrumentalities of the state. This is the mandate of Article 14 of the Constitution, which insists on just, fair and non-discriminatory action by the state. Moreover, government contracts often involve huge amounts of public money. Ordinarily, the lowest bidder should be given the contract, though it is not an invariable rule in all cases. In the Prasar Bharti case, the lowest bidder who made a clear offer should have been selected, according to the Supreme Court.

In the second case, the issue involved was the building of bus shelters in Mumbai and the right to advertising space in them (Brihan Mumbai Electric Supply vs Laqshya Media Ltd). The appeal was against the judgment of the Bombay High Court, which had set aside the contract awarded to two companies and called for fresh tenders. The Supreme Court modified the order of the high court. In this judgment, the court reviewed the case law on this point and the principles developed by it in view of the recurrence of the disputes in various forms in several high courts.

The basic norm is that public property owned by the state or its instrumentalities should generally be sold by public auction or by inviting tenders. This rule is insisted on by the court because following this principle would firstly, fetch the highest price for the property and secondly, it would ensure fairness in the activities of the state and public authorities. It would also make sure that the authorities can justify their action on the touchstone of “justness, fairness, reasonableness and as a reasonable, prudent owner”.

The government should be seen as acting above board. “Nothing should be done by the public authorities,” emphasised the court, “which gives an impression of bias or favouritism. Ordinarily, these factors would be absent if the matter is brought to public auction by inviting tenders.”

However, in exceptional cases, considering the nature of the trade or largesse or for some other good reason, a contract may have to be awarded through private negotiation. The court said that this should not be done without adequate reasons “as it shakes public confidence”.

Five months ago, the court dealt with these exceptional situations in the Villanur Iyarkkai Padukappu Maiyam vs Union of Inda case. The Pondicherry government selected a private developer to modernise its port, which was not able to compete with other harbours. The government selected a developer, bypassing the tender process. Some 30 firms had volunteered to undertake the task. When one consortium was selected, those who were disappointed moved the Madras High Court, which dismissed their petition. Then they appealed to the Supreme Court without result.

Justifying the selection of the consortium, the Supreme Court said: “Non-floating of tenders or not holding of public auction would not in all cases be deemed to be the result of exercise of executive power in an arbitrary manner.” When a project has to be implemented urgently, the government can skip the usual route; it would be pragmatic and in the best interest of the state. Those who rush to get government contracts would be well advised to realise the above rules in favour of the authorities so that they know how the land lies.