Corporate Vigilance Department Page 1
Disha �दशा
Message from Chief Vigilance Officer
We are happy to bring out the 13th issue of
Vigilance e-newsletter ‘DISHA’. We are
sincerely thankful to all readers and specially
those who conveyed their appreciation,
encouragement and even critical remarks with
suggestions.
Vigilance Department has been proactively and
extensively taking up in-depth study of various
processes and works over the past three years.
The findings of the studies have helped in
improving the systems and procedures in the
company by infusing clarity, transparency and
accountability in them.
Due to increased competition from private
sector and changing market conditions, the
margins of the Company are under stress.
There is an urgent need to examine, how we
can reduce input cost and revenue
expenditure in particular to remain
competitive. Vigilance has been constantly
pursuing with the company for timely revision
of Works, Personnel and other Policies to
facilitate timely and correct decision making
and the long awaited ‘BHEL- ONE’ IT platform
shall be put in place without further delay.
I wish to appreciate the spirit of entire
Vigilance fraternity for bringing out this
quarterly in house e-newsletter.
Date: 06/07/2016 (Arvind Kadyan)
Need to Strengthen Preventive Vigilance:
Cabinet Secretary
Cabinet Secretary, P.K. Sinha delivered a
Lecture on ‘Vigilance as a Tool of Good
Governance’ at Central Vigilance Commission
on 27th June as a part of Knowledge
Management Programme launched by the
Commission.
The programme was attended by senior
officials from different Ministries, CMDs and
CVOs of PSEs and other organizations.
Speaking on the occasion, the Cabinet
Secretary said that vigilance is not a one-time
activity but a continuous exercise. There is a
need for capacity building in Vigilance for
which expert from different fields are
required.
The Cabinet Secretary said that the country
can achieve double digit growth but for this
fast decision making is required. He
emphasized that bona-fide decision makers
need to be protected. The Vigilance officials
must take quick decisions since justice
delayed is justice denied.
He emphasized that there is a need for
strengthening Preventive Vigilance. He
suggested that SOPs for different activities
shall be prepared to minimize scope for
deviations from the laid down policies/
guidelines.
He stressed that manning of vigilance is very
important. The authorities must ensure that
competent and experienced officers are
posted in vigilance, who are well conversant
with the procedures and rules of the
organization.
भारत हेवी इलेि��क�स �ल�मटेड Bharat Heavy Electricals Limited
Disha (A Quarterly e-Newsletter of Vigilance Department)
Issue No.13
April – June, 2016
A little more persistence, a little more effort,
and what seemed hopeless failure may turn
to glorious success.
~ Elbert Hubbard
Corporate Vigilance Department Page 2
Disha �दशा
BHEL is playing Important Role in Nation’s
Development: RBI Governor
Dr. Raghuram G Rajan, Governor, Reserve
Bank of India visited BHEL, Bhopal on 29 April,
2016. AMV Yugandhar, Executive Director
BHEL, Bhopal and his team of General
Managers briefed Dr. Rajan about the activities
of HEP, BHEL.
Dr. Rajan at ‘Center of Excellence in HYDRO’ at Bhopal
Unit
Dr. Rajan appreciated the work being done by
BHEL as an engineering organization. While
addressing the employees of unit, he said that
BHEL is playing important role in nation’s
development and the nation has a lot of hope
from organization.
AMV Yugandhar, ED briefing about the functioning of
ULTRA High voltage Transformer Testing Lab
Implementation of Revised Action Plan to
Mitigate Potential Areas of Corruption to be
Included in KRAs of Executives
The Corporate (HR) Department has issued the
revised Action Plan for the year 2016-17, to
mitigate corruption. The Action Plan will
facilitate Management to monitor
implementation of preventive measures to
check the corruption and facilitate efficient
utilization of resources. The revised action
plan has been sent to all units for
implementation.
2.0 It was experienced that during 2015-16,
due to lack of clarity about the responsibility
for taking action on the points mentioned in
Mitigation Plan, some of the Units could not
submit the report in time. Further, the reports
submitted by Units were vague / incomparable
and no meaningful inference could be drawn
from data / information furnished in these
reports.
3.0 Keeping in view the experience of last
year, the responsibility for implementation of
action plan has been defined for each
measurable target. Further, a reporting format
for the action plan has also been prepared.
The main features of the revised policy are as
follows:
3.1 Instead of quarterly report, a half yearly
report is required to be submitted by the Units
/ Regions to the Nodal officer in the Corporate
Office. Units will submit the half yearly report
in the prescribed format by 15th October and
15th April of each year.
3.2 The activity of implementation of CMAP
and submission of report shall be part of KRA
of officers mentioned in the report and all
nodal officers.
3.3 The Nodal officers in the Unit(s) /
Region (s) will be required to examine the
report and apprise the Unit Head about the
status of implementation of action plan. He
will forward the Half Yearly report along with
comments of Unit Head regarding the
progress made on different aspects to the
Nodal officer at the Corporate Office in the
prescribed format by 15th October and 15th
April of every year.
Time is the most precious element of human
existence. The successful person knows how
to put energy into time and how to draw
success from time.
~ Denis Waitley
Corporate Vigilance Department Page 3
Disha �दशा
22nd Quarterly Review Meeting with
Independent External Monitors (IEMs)
The 22nd Quarterly review meeting with IEMs
regarding implementation of Integrity Pact in
BHEL was held on 07.06.2016. CMD, Director
(E, R&D), CVO and other officials from BHEL
were present in the meeting with the three
IEMs.
The CVO suggested to reduce the threshold
limit of tenders for implementation of Integrity
Pact (IP) so that 90% of the tenders of the
company are covered.
The issue of time and effort being put in for
preparing the monthly MIR on IP was also
discussed. It was decided that Corp. MM may
review and simplify, the format of the report
keeping in the objective of IEM system.
It was also decided that the three IEMs may be
assigned specific units and practice of
nominating IEM for each tender by Corp MM
may be reviewed.
VVR Sastry, IEM proposed that IEMs should
also have a separate meeting with CVO
regarding various initiatives being taken by
Vigilance department regarding transparency
and accountability in the organization.
Vigilance Inspected PS-NR
Inspection of Power Sector-Northern Region
(PS-NR), Noida was undertaken by Vigilance
team headed by Ashwini Kumar, GM (Vig.)
from 24th to 27th May, 2016. Some of the
issues which were noticed during inspection
are as follows:
• Non-preparation of detailed estimates before
floating of NIT in line with Works Policy.
• Basis of estimated rates not mentioned in the
proposals.
• Local factor and profit margin considered for
preparation of estimates which is not in line
with the provision of Works Policy.
• Non-deployment of T&Ps by Contractors as
per Contract agreement.
• Pre-qualification Requirement (PQR) specified
in the tenders found to be subjective and
restrictive.
• Reasonability of rates quoted in tender not
established, resulting in contract being
awarded at high rates.
• Capacity Assessment carried out on different
dates for different bidders after tender
opening.
• Details of sub-contractors not being
maintained as per SEARP 2010 format in
SAS.
Vigilance Inspected HEP, Bhopal
The Vigilance team visited HEP, Bhopal Unit
from 25th to 29th April, 2016. Some of the
important points which emerged during
inspection are as under:
• Employees posted in sensitive areas not
rotated as per Corporate HR guidelines no.
AA:HR:TMX:CVC dated 22.11.2013.
• Separate works contracts concluded by
different blocks in the Unit for similar works
(e.g. crane operation, mechanized cleaning)
and that too at different rates.
• Implementation of Bio-metric Attendance
system and its linkage with payment for
employees and Contract labours yet to be
completed.
• Fabrication vendor supplied partly finished /
incomplete items which were accepted by
Unit officials and balance work was carried
out in the Unit Shops.
• Estimates not prepared diligently. Inadequate
planning of work and incorrect preparation
or non-preparation of detailed estimates.
• Reasonability of rates quoted by L1 bidder
not established.
• Single part (only price bid) limited tender
enquiry floated for entering into Rate
contract for transport Contract.
• PMDs contain inactive vendors.
Corporate Vigilance Department Page 4
Disha �दशा
Major System Improvements Recommended
by Corporate Vigilance
(i) Revision of Works Policy, 2008 and
other related guidelines to simplify the
existing provisions, to minimize
discretionary powers and to enhance
transparency in the functioning of the
Company.
(ii) Revision of Personnel Manual, 1997 and
other related guidelines to align them
with the Govt. Policies / guidelines.
(iii) Revision of RA Guidelines based on
International Best practices.
(iv) Fraud Prevention Policy (July, 2015) was
notified to facilitate reporting of any
fraudulent activity.
(v) Online Complaint System was launched
in October, 2015 to bring more
transparency in the functioning.
(vi) Coverage of ‘Integrity Pact’ increased-
Threshold value for Tender has been
brought down from Rs.10 crores to Rs.5
crores. Independent External Monitors
(IEMs) are in place to ensure fairness in
tendering process.
(vii) Audit Trail for IT enabled system put
in place to check manipulation of the
systems being used by Units.
(viii) Installation of Bio-Metric Attendance
System in Units to check problem of
ghost / absentee contract workers and
control excess payments on a/c of
overtime to employees.
(ix) On-line Vendor Registration System was
launched in April, 2015 to facilitate
expansion of vendor base.
(x) Review of PMDs- Vendors who have not
taken any job during last five years to be
weeded out.
(xi) Develop Online Vigilance Clearance
System to expedite the process.
(xii) Notify Recruitment Policy and Transfer
Policy
(xiii) Digitization of Land Records: BHEL units
have taken up digitization project and
also started construction of boundary
walls to check encroachment of land.
(xiv) Cartelization in Transport & fabrication
Contracts Checked: Changes suggested
in NIT conditions, as a result cartels were
broken in a few cases and reduction of
rates to the extent of 10-25% was
achieved in Contracts, resulting in
savings of more than Rs.150 crores.
These changes will also have long term
effect.
(xv) Utilization of Unused Material: A
special drive was undertaken by Units to
segregate unused materials lying in open
in units for years, to identify whether it
can be used, recycled or need to be
auctioned. Consequently, large quantity
of material worth more than Rs.100
crores have already been retrieved for
reuse / auctioned. Further, units initiated
action to review quantity indenting
procedure to avoid excess procurement
(xvi) Review of Material Estimation
Procedure: A sample study of eight
project sites by Vigilance revealed that
material (only cables) worth more than
Rs.35 crores were still lying at project
sites even though substantial work has
already been completed. At present BHEL
is working on more than 100 sites. The
lack of clarity in instructions / contract
conditions about shifting of surplus
material from project sites, has resulted
in present situation which has
considerable financial implications. After
issue of clarification by Vigilance, in few
cases action has been initiated by some
Units to shift surplus material to new
sites.
Corporate Vigilance Department Page 5
Disha �दशा
(xvii) Implement Sequential Material Supply
System: Due to advance supplies, at
times, materials at site get lost, stolen or
damaged resulting in financial loss to the
company. The issue was taken up with
the management to review the extant
practice of sending material to project
site to avoid losses. All units have been
sensitized about the need to stick to L-2
schedule and before dispatch take the
clearance of Project Manager.
(xviii) IT Based system to be developed to
monitor recovery of dues on account of
rent and allied charges from Town
ships. During last two years about Rs.5.0
crores have already been recovered.
(xix) Review of Role and responsibility of
Finance: For better compliance of
provisions of Purchase and Works Policy,
the instructions have been issued by
Management to review the role of finance
as a second check at different stages of
procurement, particularly at pre- Tender/
Tender issue stage.
(xx) Instruction issued for system
improvement in the areas of Deficiency
in Quality Inspections; Reasonableness of
Rates; Qualification of vendors in open
tenders; Placement of Repeat orders;
Submission of stamped documents by
Suppliers / Bidders; Deficiencies noticed
in execution of Transport Contracts and
preventive measures; Do’s & Don’ts for
procurement contracts; Surplus Material
and Items at project sites etc.
CASE STUDY & LEARNING POINTS
Case No. 1 – Due to Deficiency in Tendering
Process CNC Machine could not be made
operational
Background
- One of the Units of BHEL proposed to
retrofit an existing CNC plasma / oxy fuel
cutting machine which was imported from
Italy. The scope involved replacing certain
existing sub-systems of the machine with
new ones and establishing operation of the
machine with the newly installed sub-
systems / parts. The indent estimate was
Rs.50 Lakh.
- An Open tender enquiry was floated. NIT
suggested that bidders may visit the factory
to get a first-hand knowledge of the type of
machine, its size, features, space
availability, the existing parts & operation
of the machine etc. E-mail intimation of
enquiry was also sent to 11 indentor
suggested vendors.
- Four offers were received, out of which
three were from indentor suggested
vendors and one new vendor. The new
vendor was disqualified as they have not
supplied / retrofitted in the past 5 years at
least one CNC plasma cutting machine
having all the technical specification
features mentioned in QR. The order was
placed on the L1 vendor (Indian) at
Rs.56.69 Lakh on 31-10-2014.
- Payment of Rs.42.65 Lakh was made on 31-
03-2015 as per the PO term of “80% against
receipt and acceptance of materials”.
- As per NIT & PO, the vendor had to
establish cutting of 75 mm thick Stainless
steel (SS) plate through this machine using
plasma cutting method.
Due to non-availability of 75 mm thick
plate, trial was done with 80 mm thick
plate. The catalogue of the system
furnished by the vendor along with the offer
Forget about all the reasons why
something may not work. You only
need to find one good reason why it
will.
~ Dr. Robert Anthony
Corporate Vigilance Department Page 6
Disha �दशा
provides for plasma cutting up to 100 mm
thick stainless steel plate. The MOM dated
23-04-2015 signed between the dept. &
vendor indicates that, “Plasma cutting was
found O.K. upto 40 mm thick SS plate.
However, in the case of 80 mm thick SS
plate, at the end, materials are not cut
completely. This can be done by adjusting
parameters & further trial to be taken.
There is malfunctioning of gas control
module, due to which, plasma cutting
operation cannot be continued at present”.
- The gas control module was replaced by the
vendor on 13-05-2015. Cutting of 75 mm
thick plate was still not proved. Vendor
intimated on 01-06-2015 that, “CNC
parameter is adjusted. DGM has inspected
and found o.k.” When the dept. further
corresponded with the vendor on 22-08-
2015, the vendor vide letter dated
24.08.2015 asked BHEL to first issue
commissioning report and then only they
will act.
- Another major issue was regarding
interfacing the external encoder supplied by
the vendor with the machine controls. The
vendor intimated that this interfacing is not
required. The dept. informed the vendor
how the cutting becomes irregular in the
absence of such interface.
- NIT indicates requirement of encoder but
not specifically insists on external type.
Against this, the vendor indicated in the
offer as, “complied”. In the MOM date 30-
12-2014, the vendor had agreed to provide
external encoder. The vendor supplied the
encoder also. However, vendor, in his letter
dated 06.08.2015, indicated that, the
controller supplied by him does not require
any external encoder. The motor drive
encoder feedback is sufficient for the
controller.
- If the motor drive encoder feedback is
sufficient for the controller, then the vendor
should have stated so in the offer itself. It
is, thus, clear that the vendor did not
supply the item as per his own offer /
agreed terms. The controls supplied by the
vendor did not lend itself to connecting an
external encoder as feedback.
- Due to deficiency in Tender Evaluation and
award of work to incompetent vendor, the
machine could not be made operational
even after a lapse of one year.
Observations
- The above course of events raised doubt on
the capability of the vendor to carry out the
retrofitting work. On verifying the technical
evaluation and qualification of offer of the
vendor, certain deviations are noticed.
- NIT states that, “Offered make and model of
the plasma power source shall be same as
in the performance certificate”. The offered
model of the plasma power source is “P”.
The performance certificate does not
mention make & model of plasma power
source but simply indicates “Q” as make &
model of the machine. Two other
performance certificates mention model as
“R” & “S”. All these (Q, R & S) are different
from the offered model of “P”.
- QR states that, “Only those vendors who
have supplied or retrofitted in the past 5
years (as on the original date of tender
opening) at least one plasma CNC cutting
machine (technical features specified)
should quote. The referred machine should
be presently working satisfactorily for more
than one year after commissioning”.
- QR further states that, bidder should
submit at least one performance certificate
from their customers in India for
satisfactory performance of the machine
(technical features specified) for a minimum
period of one year (as on the original date
of tender opening).
- In the documentary proof submitted by the
vendor in support of the above QR’s, the
month and year of installation of the
machine is indicated as 05-09-2008. The
original date of tender opening is 12-07-
Corporate Vigilance Department Page 7
Disha �दशा
2014. This means that, the installation of
the reference machine should not be earlier
to 12-07-2009. But, in this case, it is 05-09-
2008 and therefore the offer does not meet
the QR.
- Thus, the vendor does not have previous
experience of retrofitting the offered
model, which is a qualifying criteria. The
inability of the vendor to meet the PO
requirements could be due to wrong
qualification of the bidder.
- Indenter says that, the offered model “P” is
latest arrival in end of 2013. “P” has some
additional features but basic working
systems are same as “R”. Hence the offer is
qualified based on the performance
certificates submitted by the bidder.
- If latest arrival / model is acceptable, then
the QR has to indicate so. The QR
“Submission of performance certificate for
satisfactory performance of the offered
model for a minimum period of one year” is
impossible in the case of latest models
which are released less than a year, as
happened in the instant case.
- Bringing in such new conditions post tender
opening and thereby qualifying such offer
amounts to dilution in QR after tender
opening, that too in an open tender.
Learnings
� Technical specification in the NIT should be
clear.
� Dilution of QR post tender opening in open
tender should be avoided.
� Evaluation of offers should be done strictly
in line with NIT terms.
[Contributed by K. Ganesan, GM, Vig. Trichy]
2. Procurement of Grinding Elements for
Bowl Mills
Background
1.1 One of the BHEL unit was having a rate
contract (RC) with vendor M/s. X regarding
manufacture and supply of Grinding Elements
used in bowl mills. This RC was finalized on
single tender basis. As the period of RC was
nearing completion, it was decided by unit to
finalize a new RC. The unit floated an open
tender enquiry in January, 2015 for entering
into a 2 Year Rate Contract with Pre-
Qualification Criteria (QR) which, inter alia,
included following clauses: (a) Bidder should have supplied minimum of 13
sets of Grinding Rolls
(b) Evidence of the established performance of
minimum 6,000 hours of Raymond type coal
mills.
1.2 One of the bidder M/s. Y approached
BHEL to also consider their experience in other
type of Mill design used in power plants which
are using Indian Coal.
1.3 The request of M/s. Y to review the PQR
and consider their experience of other Mill
design was rejected. Unit Management opined
that the requirement of 13 sets as qualifying
criterion was prescribed after statistical
analysis. Further, QR framed by BHEL is to
meet the market requirement of life and
reliability determined based on customer
tender/ contract requirements. For not
meeting the specified performance parameters
mentioned in contract, huge penalties would
be levied by the customer, besides running the
risk of high negative impact on future
business. In view of the above, the QR for the
above tender cannot be changed.
1.4 As no offers were received, the tender
due date was extended seven times.
1.5 On receipt of representation in the
case, Corporate Vigilance advised Unit to
review tender conditions and in case there is
only one qualified bidder, then feasibility of
re-tender need to be explored. During
discussions with Unit officials, it was observed
Do not look where you fell but where you
slipped.
Corporate Vigilance Department Page 8
Disha �दशा
that the tender conditions were restrictive,
consequently, it was advised that the
Qualifying Criteria may be reviewed and
relooked in line with Customer requirement to
ensure competitive buying.
1.6 Tender Committee again met in
February, 2015 and intimated to M/s. Y that
their request cannot be considered and
decided to proceed with tender opening. The
tender got delayed for five months due to
insufficient response.
1.7 M/s. Y further represented on 12th May,
2015 that based on running hours’ data from
various customers they meet the criteria of 13
sets of grinding elements and achieved 6000
running hours.
1.8 After technical evaluation, the case of
M/s. Y was sent for Customer approval. The
customer approved the new vendor
though after lot of delay.
1.9 There was insufficient response to the
tender and already 6 months have lapsed,
therefore, Unit decided on 29th May, 2015 to
issue retender to obtain more response.
1.10 Re-tender was floated on 8th June, 2015
with same Pre-Qualification Requirements
(PQR) and Bids were received from M/s. X and
M/s. Y.
1.11 Price Bids were opened on 30th
December, 2015 and M/s. X was L1 with a
quote of Rs.85,66,04,952/- against the
estimated cost of Rs.113,37,87,974/-. It was
observed that due to competition, the
reduction of 11 to 28% was achieved for
different items of the tender. Overall, a
reduction in the rates to the tune of Rs.28
crores approx. was achieved with the
introduction of second vendor.
2.0 Observations
2.1 The grinding elements were to be
supplied as per technical specifications
stipulated by customer. Thus, it was not
justified not to review the condition of having
supplied 13 sets with guaranteed wear life of
6000 hours which was based on a statistical
tool and was restricting the competition.
2.2 There was only single qualified vendor
in the earlier enquiry. The lack of response /
competition shows that QR criteria adopted by
Unit for the rate contract was restrictive.
Enquiry was extended seven times and finally
the tender was short closed as there was
only one response. Subsequently, fresh
tender was issued with same terms and
conditions as in the meantime M/s. Y was able
to meet QR criteria.
2.3 The single tender situation was
exploited by M/s. X is clear from the fact that
after a new vendor M/s. Y also qualified for
the tender, M/s. X reduced its rate by almost
25% with reference to the earlier rate contract.
2.4 When it became clear that there was
inadequate response against the tender for
supply of Grinding elements, Unit was
required to review and revise the QR for the
purpose of re-tendering with the objective of
getting better response. However, instead of
going for re-tender immediately, the tender
opening date was extended again and again,
which delayed the conclusion of contract by
almost one year. Due to this delay BHEL had
to incur extra expenditure of Rs.5 crore
(approx.) by placing purchase orders against
the old RC.
2.5 On Vigilance recommendation, based
on above case, BHEL management issued
circular that in case of circumstances like
inadequate response against the tender, Unit
is required to review and revise the QR for the
purpose of re-tendering with the objective of
getting better response.
Learning
� PQR should be broad based and objective
to ensure competitive buying.
� In case of inadequate response, retender
should be initiated after reviewing PQR in
line with Corporate MM circular dated
02.05.2016.
� Tendering process should be completed in
a time bound manner.
[Contributed by Ashwini Kumar, GM, Corp. Vig. &
Amit Jain, SDGM, Corp. Vig.]
Corporate Vigilance Department Page 9
Disha �दशा
IMPORTANT CIRCULARS
1. Surplus Materials/ items at Project Sites (Corp. Vig. Circular No. 02/2016 dated 23rd April, 2016)
During CTE type inspections at select project
sites, it was observed that some of the
materials/ items supplied by units for project
execution is still lying on project sites even
though substantive work has already been
completed. A sample study of eight project
sites revealed that cables alone worth more
than Rs.35 crores was lying at eight select
project sites where work has been completed.
2.0 The surplus material, mainly cables,
structural steels (angles, beams, channels
etc.), pipes, valves, fittings etc., have not been
shifted to other functional sites even though it
is not required at the present project sites.
Further, there have been instances where the
material either got lost / damaged or stolen.
The wastage of resources / material needs to
be checked since it has considerable financial
implication for the Company.
3.0 Some of the reasons cited for not
shifting the surplus material/ items from
projects sites are (i) lack of instructions
regarding shifting of surplus material from
project sites (ii) restrictions in contract
conditions regarding shifting of surplus
material and (iii) lack of clarity about taxation
issue etc.
3.1 Further, it has also been stated that
some time customer may also not allow
shifting of surplus material on the plea that
payment for the material has been made to
BHEL against BOQ. In this connection, it is
mentioned that BHEL is required to execute
the job as per scope of the contract and BOQ
is just to regulate the payment. Thus, if there
are any surplus material at site, the issue
should be taken up with the customer at
appropriate level to allow BHEL to shift the
surplus material.
4.0 NTPC, who is a major customer, has
already issued detailed instruction vide
circular No. 618 dated 24.06.2008 regarding
disposal of surplus/ scrap material generated
during execution of the Contract. A copy of
the same is enclosed for guidance.
5.0 In order to ensure optimal usage of
resources and avoid any loss on account of
surplus material at sites, it is required that all
authorities responsible at different stages of
contract execution i.e. Marketing, Indenting,
Purchase, Execution, Payment etc. take actions
suggested as under -
5.1 Role of Marketing
5.1.1 To examine the issue of ownership of
surplus material and take up the issue of
diversion of all surplus material / items during
execution or after completion of work at
project sites.
5.2 Role of Indenter / Purchase
5.2.1 All Units, including PEM, to finalize the
drawings/ design with the Customer as per
project schedule so that realistic requirement
may be procured to avoid infructuous
expenditure. A data bank of drawings/
designs of projects may be created for realistic
estimation.
5.2.2 With an intent to stagger the delivery
and to obtain quantity discount, a nodal
agency for all Units may examine feasibility of
entering into Rate Contract for Direct to site
(DTS) items like Cables. Further, to avoid
supply of excess material at project sites for
DTS items like cables, structural steels, pipes,
valves, fittings etc., Unit / Regions including
PEM may examine the feasibility of ordering
not more than 80% of the projected quantity
and balance quantity could be procured after
getting confirmation of the requirement from
Region/Project Manager.
5.2.3 While preparing indents, quantity to be
indented should take care of available stock,
shelf life and project forecast. Additional
factors, without proper justification, shall not
be considered to increase quantity.
Corporate Vigilance Department Page 10
Disha �दशा
5.3 Role of Regions / Sites
5.3.1 Identification and segregation of
material i.e. usable and unusable as and when
job is completed or after completion of COD.
5.3.2 As and when the particular stage as
above is completed, Site / Region shall inform
respective Unit for removal of surplus usable
material from the site.
5.3.3 Unusable / scrap materials lying at the
project site shall be disposed by the Region as
per Company’s guidelines.
5.4 Role of Finance
5.4.1 To ensure that procurement of
material/ stores is done as per L-2 schedule.
In case procurement action is being taken in
advance, finance dept. may advise the
Indentor to record justification for the action.
5.4.2 While considering the proposal for
procurement of DTS items, it may be checked
whether precaution has been taken, as
suggested in para 5.2.2 above, to avoid excess
supply at site. If not, Indentor may be advised
to review the requirement and record the
justification.
5.4.3 To see whether procurement of DTS
item through rate contract is feasible or not.
5.4.4 After completion of work or while
processing the final bill of contractors at site,
it may be insisted that a Stores Reconciliation
statement is submitted along with details of
surplus material (usable / unusable) unit wise,
if any, and advice Project Manager to forward
the details of surplus material to the
respective unit for necessary action.
5.5 Role of Internal Audit (IA)
5.5.1 The cases of surplus material at site, if
any, may be highlighted in inspection report
and copies be sent to respective units for action.
5.6 Role of Unit
5.6.1 As soon as report is received by the
Unit (from site / Region / IA) about the usable
surplus material at project site, unit shall
examine the feasibility i.e. (i) whether the
surplus store can be shifted to other running
project site(s) (ii) If the store cannot be used
immediately but will be used in future project,
where it is to be stored (iii) If the surplus store
cannot be used in future projects how it can
be disposed of.
2. Acceptance of Bank Guarantee (BG) – Reg. (CVC OM No. 02-07-1-CTE-30 / 309204 dated 4th March,
2016)
Reference is invited to the Commission’s
Circular No. 01/01/08 dated 31.12.2007
(issued vide OM No. 02-07-1-CTE-30 dated
09.05.2006), wherein necessity for ensuring
verification of genuineness of Bank Guarantee
prior to its acceptance was emphasized and
steps were suggested.
2.0 It is, however, observed that the
practice of paper based verification of BGs
followed by the organization is not only time
consuming causing delay in acceptance /
award of works or advance related payments
but also its trustworthiness cannot always be
ensured due to human intervention in it.
3.0 In this background, organizations are
advised to follow IT enabled confirmation
system which is swift and secured in addition
to their existing paper based confirmation
system. The following methods for
verification may be considered by the
organizations:
(a) Getting confirmation through digitally signed
secured e-mails from issuing Banks;
(b) Online verification of Company portal with user
id and password followed by 2nd stage
authentication system generated One Time
Password (OTP) on portal for reconfirmation;
(c) E-mail confirmation followed by 2nd stage
authentication by system generated SMS through
registered mobile and reconfirmation through SMS
to the verifying officer.
4.0 Keeping above in view, organizations
may evolve their own procedure adopting
anyone or more of the above methods for
ensuring genuineness of BGs, which is
compatible with the guidelines of Banks /
Reserve Bank of India.
Corporate Vigilance Department Page 11
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ARTICLE
STRATEGY FOR REVERSE AUCTION
Introduction
Technology is an important tool to promote
transparency and efficiency in procurement
process. Recent advancements in technology
have changed sourcing strategies and
practices. Reverse Auction is one such
development in the area of procurement. It
can be defined as specialized auction, which
facilitates procurement of goods and services
by an organization.
What is Reverse Auction?
In traditional auction (also known as forward
auctions), a seller offers a product that is
demanded by several buyers who compete and
bid up the price. The highest bidder wins and
buys the product. Reverse Auction is exactly
opposite to the above traditional auction.
In a reverse auction, it is the buyer who is in
control of the process. The buyer is interested
in an item offered by a number of sellers who
compete and lower their price in order to get
the deal.
There are different practices of holding
reverse auctions i.e. some companies invite
paper bids/ e-bids and after technical
evaluation conduct reverse auction among
qualified bidders. At predetermined date and
time, bidders submit online sealed bids and
lowest among them is taken as base price to
conduct the auction. In this case financial bids
submitted by vendors are opened only if
reverse auction fails/ not conducted. Whereas,
some companies open the financial bids and
use the L-1 rate as base price for conducting
reverse auction.
Benefits of Reverse Auction
Of late reverse auction is being used
extensively for procurement by companies due
to the cost and time saving which accrue with
its use. Some of the benefits which a
company can achieve by conducting reverse
auction are as under:
• Possibility of getting better price due to
continuous competitive bidding;
• Whole process is fair, transparent and
equitable;
• Saves time as auction is live and very fast;
• Increased efficiency in the market;
• Efficiency of Procurement Process increases;
• Best suited for the standard off the shelf
items.
Implementation Issues
The implementation of reverse auction has
some negative impact on the interest of
buyers as well as suppliers and in the long run
it could prove counter-productive. It is
essential that while going for reverse auction
the under mentioned issues must be kept in
view.
• By focusing excessively on price, the online
reverse auction relationship between
buyers and suppliers get affected, which
is earned with the suppliers over the years
of working with them.
• The reverse auction process may ultimately
result in higher actual costs as other non-
price factors are not considered in the
process. Competitive priorities such as
quality, delivery reliability and timing,
flexibility, and technological capabilities can
be traded off for lower unit price.
• After an initial period, market inefficiencies
will be eliminated and prices will become
stable. As a result, non-competitive
suppliers will be eliminated. However, if the
price drops further, some viable suppliers
will not be able to survive. Gradually, some
will be pushed out of the market or have to
consolidate to increase the economies of
scale to support lower prices. Either way,
over time, this erosion of the supplier
base will result in less competition and,
ultimately, higher bargaining power for
suppliers.
Corporate Vigilance Department Page 12
Disha �दशा
• The reverse auction process opens the door
for new entrants and gives them a chance
to compete with the established/ registered
and other known suppliers. Generally, new
entrant is highly motivated to gain a new
customer and willing to cut its profit margin
to a bare minimum and even quote
unrealistic rate to enter the market. In such
a situation sometimes established/
reputed vendor keeps away from reverse
auction process.
• By focusing on price as the determining
factor and almost ignoring all other factors,
such as quality, service and delivery,
suppliers feel that the reverse auction
process reduces their product to a
commodity.
• During reverse auction process, a supplier
may get so caught up in the competition
that it offers unrealistically low prices even
below their costs. It happens particularly
in situations where it is hard to estimate
costs accurately and later on performance
of supplier suffers.
Best Practices
The reverse auction is best suited for off the
shelf-items and commodities but not for all
products. Following factors need to be kept in
view while taking a decision regarding
conducting of reverse auction.
Product Factor
Reverse auction is more suitable for a product
if it is price-based; i.e., the purchase price
constitutes the largest component of its value.
When the purchase price is the dominant
portion of the product value, then the value of
the product can be easily expressed
quantitatively; and therefore, reverse auction
can be used to efficiently evaluate the
suppliers’ bids and set the purchase price.
Contrary to common belief, a complex item or
service can be auctioned, as long as its
attributes can be translated into unambiguous
specifications
Market Factor
A high degree of competition among suppliers
is a key market factor impacting the success
of reverse auctions. The higher the number of
competitive suppliers and the more rivalry
among them, the more effective the reverse
auction process will be in lowering the price.
While the required minimum number of
suppliers depends on the specific product and
market, studies have provided a ballpark
figure of four or five.
Another contributing market factor is the
volume of the purchase contract. The
purchase volume should be large enough to
be attractive to potential suppliers. Larger
volume can attract a larger number of
suppliers, which in turn will lead to higher
competition and lower prices.
The third market factor influencing the
applicability of reverse auction is availability of
excess supply capacity. If excess capacity
exists in the supply base, there is incentive for
the suppliers to bid in order to get more
business. The reverse auction is particularly
well suited to service industries, such as
transportation, whose output can’t be stored
and its excess capacity would otherwise be
lost.
Buyer-Supplier Relationships
The effectiveness of reverse auction depends
on the nature of buyer-supplier relationships.
These relationships can be classified along a
continuum. At one end of the continuum is a
transactional exchange which is conducted at
arms-length, is focused on the current
transaction, has short term contracts, and
often selects the supplier solely based on
comparative price.
At the other end is the relational exchange
where the relationship is much closer and
strategic, and other non-price attributes--such
as quality, reliability, technological capability,
organizational culture and goals--are critical in
selecting a supplier. The buyer makes a long
term commitment to the supplier, and the
Corporate Vigilance Department Page 13
Disha �दशा
supplier makes substantial investments to
satisfy the buyer requirements.
It is evident that reverse auctions are more
appropriate for transactional supplier
relationships. Organizations using a
transactional exchange relationship realize
greater cost and time saving from reverse
auctions application. It is recommended that
the nature of each supplier relationship should
be evaluated before deciding on reverse
auctions applicability. The organizations
focusing on relational exchange can use
reverse auctions; but they should not
overemphasize the price.
Importance of Non-Price Issues
The primary criticism of reverse auctions is
that it awards contracts based solely on price,
and does not consider non-price issues. While
this approach makes the process very
efficient, it is not adequate for products for
which non-price issues are important. Certain
variations of reverse auctions can overcome
this limitation. Some companies use a
“satisfying” strategy/ prescribe PQR. Another
approach is that the buyer does not commit to
the lowest bidder, but uses reverse auction as
a “screening” tool to identify a few low price
suppliers and subsequently considers their
performance on non-price issues to select one
to grant the contract. To make the final
decision, a face-to-face negotiation with the
top bidders selected through the screening
process can follow. This approach is more
supplier friendly, as it allows the buyer to
consider other issues where a supplier might
have superiority.
Suggestions for Implementation
Reverse auction is one such tool, which is very
useful as it can facilitate in finding lowest
bidder, price discovery and can bring savings
to the company. However, the experience has
shown that if precautions are not taken,
reverse auction could be used to manipulate
the procurement process and may result in
procurement at higher rates. Further, it could
facilitate placement of order on the select
supplier, which is somewhat difficult through
paper bid opening process. The reverse
auction could prove counter-productive in
following circumstances:
� When there is cartel formation by
suppliers;
� When number of participating suppliers is
small;
� When company managers don’t take
estimation exercise seriously and tend to
accept the rates achieved in auction as
most reasonable rates without any
estimation exercise in the name of price
discovery;
� When suppliers know the details of
competitors before conducting of reverse
auction;
� When suppliers know that procurement
will be finalized only through reverse
auction irrespective of number of bidders;
� When all bidders who submit online sealed
bid i.e. bid submitted by suppliers to
decide the base price of auction, are
allowed to participate in reverse auction,
there is tendency to submit irresponsible
online sealed bids quoting highly inflated
rates.
To obtain the best result through reverse
auction, it is advisable to introduce some
surprise element in the auction process to
minimize scope for manipulation by suppliers
or company managers. Some suggestions for
successful reverse auction are as under:
� In NIT, it may mentioned that “Company
reserves the right to go for Reverse
Auction (RA), instead of opening the sealed
envelope price bid, submitted by the
bidder. This will be decided after techno-
commercial evaluation."
� Guidelines for preparation of detailed
estimate shall be issued and it shall be
ensured that estimate is prepared by
Corporate Vigilance Department Page 14
Disha �दशा
indentor before NIT is issued and counter
checked and vetted by Finance.
� Reverse auction to be held only if there are
at least four technically qualified vendors.
� In order to have serious bidding in RA, the
H-1 bidder or more (whose quote is highest
in online sealed bid) not be allowed to
participate in further RA process. The
number of bidders to be rejected at online
sealed bid stage, could be increased
depending upon response to NIT but it
should be declared before start of reverse
auction process.
Use of Reverse Auction for Tendering:
BHEL Experience
A study was conducted by Corp Vigilance to
find out the impact of reverse auction on the
rates of tenders. For this purpose, details of
tenders awarded through Reverse auction and
cases in which tenders were awarded through
paper bid opening, during Jan –March 2016
were obtained. The examination of cases
revealed that in those cases where tenders
were awarded through paper bid, savings to
the tune of 9.34 % were achieved w.r.t
estimated price. On the other hand, in case of
tenders which were awarded through Reverse
auction average savings to the tune of 8.87 %
was achieved w.r.t estimated rates. Thus, it is
a myth that competitive rates could be
achieved by using Reverse Auction tool. In
fact, the data revealed that in case of tenders
awarded through paper bid opening if the
estimates are prepared more scientifically and
negotiation are conducted properly with
supporting data, more competitive rates could
be achieved.
CONCLUSION
Reverse auctions is a popular tool since it
could be used to drive substantial price
reduction, for price discovery and to gain
knowledge of supply market. However, it can
affect long term buyer-supplier relationships
and can even lead to the erosion of the
supplier base and result in less competition
and higher prices. Moreover, it can be misused
also if precautions are not taken while
conducting the reverse auction. However, best
practices can be adopted for successful
implementation of reverse auction and
achieving benefits in procurement of
commodities/ materials.
_____________________________________________
References: 1.Carter, Craig R., Lutz Kaufmann, Stewart Beall, Phillip
L. Carter, Thomas E. Hendrick, and Kenneth J. Petersen,
“Reverse Auctions—Grounded Theory from the Buyer and
Supplier Perspective,” Transportation Research Part E,
Vol. 40(3) 2004, 229-254.
2. Nair, Anand, “Emerging Internet-Enabled Auction
Mechanisms in Supply Chain,” Supply Chain
Management: An International Journal, Vol. 10(3), 2005,
162-168.
3. Daly, Shawn P. and Prithwiraj Nath, “Reverse Auctions
for Relationship Marketers,” Industrial Marketing
Management, Vol. 34, 2005, 157-166.
4. Pearcy, Dawn, Larry Giunipero, and Andrew Wilson, “A
Model of Relational Governance in Reverse Auctions,”
Journal of Supply Chain Management, Vol. 43(1), 2007,
4-15.
5. Nair, Anand, “Emerging Internet-Enabled Auction
Mechanisms in Supply Chain,” Supply Chain
Management: An International Journal, Vol. 10(3), 2005,
162-168.
6. Gus Manoochehri, Christy Lindsy, "Reverse Auctions:
Benefits, Challenges, and Best Practices," California
Journal of Operations Management, Volume 6, Number
1, 2008, pp 123-130.
[Contributed by Arvind Kadyan, CVO]
Talk to yourself at least once in a
Day, Otherwise you may miss a meeting with
an EXCELLENT person in this World.
-
Swami Vivekananda
Corporate Vigilance Department Page 15
Disha �दशा
CONGRATULATIONS ON PROMOTION
R. Lakshminarayanan Anurag Sharma M. Dharamsivam Deepak Kr. Prasad
AGM, Piping Centre SDGM (transferred to PS-TS) SDGM,PS-SR DGM, TBG
P.K. Jha C. Shanthi Simanchal Panda Sanjay Kumar
DGM, Bhopal DGM, Trichy DGM, Piping Centre DGM, PS-HQ
B. Dayashankar P.S. Gouda Nalini Bhardwaj B.R. Srikanta
DGM, ISG, Bangalore DGM, IP, Jagdishpur Dy. Manager, Corp. Office Dy. Manager, EPD
WELCOME TO VIGILANCE AU REVOIR
M. Dharamsivam K.B. Siddaramappa S.K.Shrivastava T.N. Vaidyanathan
SDGM, PS-SR DGM, EDN, Bangalore AGM, Corp. Office AGM, PS-SR
Any suggestion(s) / article(s) / query(ies) may be mailed to [email protected]