March 10, 2015: With the need to speed up the procurement process and make it more cost effective, the Directorate General of Supplies & Disposals (DGS&D) has over a period of time introduced various initiatives. These have proved to be helpful for both the agency and the companies participating in bidding for government contracts
By Gunjan Piplani
The Directorate General of Supplies & Disposals (DGS&D) is the key procurement agency for the Indian government and it operates under the department of commerce. Decentralised in 1991, the DGS&D concludes the rates for contracts between consuming departments of the government and vendors, for items of common use. The DGS&D is typically involved when the anticipated annual purchase by a government organisation is more than Rs 2.5 million in a year.
The operations of the DGS&D are guided by a manual, which was last updated in 1999. Since then, reforms to the existing process have been gradually included in the manual. The agency observes the General Financial Rules (GFR), and overseen by the Central Vigilance Commission (CVC), and governed by periodic government notifications and broadly adheres to the laws of equity, fairness and transparency. With processes going online, the DGS&D resorted to an e-procurement platform in 2006, the primary advantage of which has been greater transparency. The agency has also introduced various new initiatives in the procurement process.
The Green Channel
To make it easy for already registered suppliers, the DGS&D has implemented the Green Channel.
This prescribes that any company with a turnover of more than Rs 10 billion and that shows profits for three out of the last five years is expected to have good operating and business standards. Such companies are granted the Green Channel.
Being a part of the Green Channel also calls for an annual fee of Rs 100,000 plus 12.36 per cent service tax, as last prescribed in March 2013. A company can operate via this channel for one year only, and further renewal should be done 30 days before the expiry of the one-year period.
To ensure that every Rs 10 billion company using the Green Channel does actually produce quality products, the DGS&D does random inspections, especially of safety-related products.
The Green Channel was introduced to do away with the tedious task of registering suppliers every time a new bid is opened.
Quick action on defective products
The DGS&D has received innumerable complaints regarding the guarantee and warranty on the products purchased by user departments. While the companies promised a certain guarantee and warranty period during the bidding process, these commitments were not met when users actually complained. This resulted in user departments being left with goods that did not function, defeating the very purpose for which the products were purchased.
So the DGS&D has made it mandatory that it will be obligatory on the part of the supplier to rectify, replace and repair the defective goods within seven days of receiving a written complaint from the user department.
Product testing from ILAC/NABL
If a company claims that its products meet the required specifications and standards of quality, it has to provide certification and test results to the DGS&D to prove this.
There are a few problems companies face across India when it comes to product testing, such as limited lab facilities, government labs that have a long waiting period, and the high fees of private labs.
For the DGS&D, testing charges are part of the product cost, which the government doesn’t mind paying for if it ensures a quality product coming in. The agency has introduced a rule stating that if products have a satisfactory report from any of the International Laboratory Accreditation Cooperation’s (ILAC) affiliated laboratories or from India’s National Accreditation Board for Testing and Calibration Laboratories (NABL), the product’s quality is not in question. The vendors should have the type of test certificates issued by ILAC/NABL accredited laboratories, to prove their claims.
Payment terms
For years, the DGS&D has been operating on the following payment terms—98 per cent at the time of dispatch and two per cent on receiving the goods in good condition. Two years back, the agency faced a problem wherein payments were made but the products were not supplied. Even after the e-procurement system became operational with inspection papers being generated online, the cases of fraud persisted.
A well thought out process was created to avoid such situations. The government decided to use the ‘50:50’ method of payment to prevent losses. This process was followed for 18 months, but a system devised to curb unreliable suppliers ended up also penalising the good suppliers, who were getting deprived of timely payments.
So the DGS&D subsequently moved to an 80:20 payment ratio for general suppliers and 90:10 for the Green Channel companies.
Increased departmental charges
With the rise in testing, inspecting and operational costs for the agency, departmental charges have been hiked to one per cent each for the purchase and inspection of products. Also, referral and direct orders are now being charged nearly 2.5 per cent over what is recommended for central government or PSU purchases.
Earlier, DGS&D was charging departmental fees of 0.6 per cent for purchase and for inspection, which was much below what other organisations engaged in procurement charged, like the Hospital Services Consultancy Corporation (HSCC), HLL Lifecare and the Rail India Technical and Economic Service (RITES).
Integrity pact
Some time back, the CVC suggested the introduction of an integrity pact, which acts as an oath between purchaser and supplier, that both will observe complete integrity in their transactions. This has now been designed and integrated into all DGS&D systems.
Fees for e-auction applications
DGS&D has introduced the e-auction platform to download applications for auctions and where model upgradation happens, especially in the IT sector where technological advancements occur frequently. For these services, the agency charges Rs 15,000 per application.
There are two types of auctions that DGS&D conducts—for products manufactured indigenously and for goods made overseas but sold by Indian contractors. In the second case, the agency had earlier mandated that either the company or its authorised agents could make a quote; the two couldn’t participate in the same auction, simultaneously.
But later, DGS&D felt the need to deal directly with the manufacturers as that ensured better prices, transparency, responsibility and accountability. So it was announced that the authorised agents could register with the agency only if their foreign, or even Indian, OEMs do not directly sell in India.
Registration process
The company bidding in an auction needs to be registered with the DGS&D. The registration and certificates, including test reports certifying the products offered for sale, are necessary. The only concession the agency makes is for tests that require a long timeline, in which case the companies are allowed to submit the reports within four weeks after the bid opens. This concession has been made so that genuine bidders are not left out.
In case of normal registration, the fee has been increased to Rs 20,000. The registration has to be done 30 days after the receipt of the application, and should be submitted along with the required documents and aforementioned registration fee.
In the case of the tatkal scheme, the company can apply for registration 15 days ahead of the tender opening date, for which the registration fee is Rs 100,000.
Price band
Earlier, when a tender was opened, a lot of companies did not send a quotation in the initial stage. To ensure that only serious vendors participate in the bidding process, DGS&D has introduced a price band. With this, the agency reserves the right to arrive at the reasonable eligible L-1 price, and to conclude rate contracts with firms quoting within a price band not exceeding 20 per cent of the price received from eligible L-1 firm(s). A parallel rate contract is concluded with firms that accept the counter-offered price. Besides, the timeline for the counter offer has also been fixed to a mandatory seven days.
DGS&D, as well as the Dhall Committee, recommended that in certain situations, the agency could do away with competitive bidding, and could enter into a contract or rate contract based on the Net Dealer Price (NDP) list.
Such bidding is applicable in areas where the variety of products offered by a brand is huge, when the brand has a value and where product specifications cannot be generalised for bidding.
Paying authority
The payment to the suppliers in all the ad hoc contracts (A/Ts) and supply orders placed against DGS&D rate contracts is made directly by indenters through their concerned pay and accounts offices only, instead of chief controller of accounts (CCA-supply) or the regional pay and accounts offices of the department of commerce.
The payment to the supplier is to be made as per prescribed forms of payments including adhering to the timeline for payments (within 60 days of the due date), which must be ensured by the indenters. Delays, if any, in this regard would render the indenders responsible and not the DGS&D in any manner whatsoever.
Consequently, the requisite departmental charges along with prevailing service tax thereon shall be deposited by the respective pay and account offices of the indentors directly to the receipt head account of DGS&D.
Complaint redressal mechanisms within DGS&D
All types of complaints, except those related to corruption (which will continue to be dealt with by the Vigilance Directorate) are examined by a standing committee constituted for the purpose. The fee for processing is Rs 10,000 per complaint, which is required to be submitted to DGS&D. The complaint so received will be processed in a parallel stream, without delaying or disrupting the rate contract process.
Other developments at DGS&D
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DGS&D, which earlier procured only goods, also ventured into the procurement of services (including facilities and infrastructure) in August 2013, but registrations in this area is yet to begin
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The tender opening time limit has now been reduced to 2-3 weeks; earlier, it was two months. This is because, all the tendering takes place on the e-platform, the whole procurement process is faster
