Bharat Heavy Electricals Limited Disha Issue No.13 April...

Corporate Vigilance Department

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


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


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.


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.


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


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-


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.


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.]


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.


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.


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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.


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• 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


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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


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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


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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]

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