eGovernment for Development

eTransparency Case Study No.2

Making Tendering More Transparent in India

Case Study Authors

Vickram Crishna (vvcrishna@radiophony.com), Udit Chaudhuri (unika@softhome.net), and Tapan Mehta (tapan@nextenders.com).

Application

A department of one of the state governments in India began tendering using an online system in 2003.

Application Description

The online system provides information about all aspects of procurement for the state government, including vendor registration, tender preparation, tender upload, tender document purchase, bid preparation, bid submission, bid evaluation, bid comparison, and tender award. Publicly-available aspects include information relating to tender notices and tender awards, with the name of the successful bidder, nature of work, and the winning bid. For authorised senior government officials only, there is information relating to issues such as budget versus spend data, and details of bids submitted in a tender. A feature is under development enabling authorised users to track progress of contracts and payments.

The application operates under standard rules that Indian states have for procurement, including tendering. There are also guidelines set by multilateral banks such as the Asian Development Bank and the World Bank who provide best practice standards and codes of conduct for National and International Competitive Bidding (NCB/ICB). The e-tendering system is compliant with World Bank standards on procurement and e-procurement.

Comparison of budget versus spend data allows the state finance department and senior officials to track budgets allotted versus amount of money actually spent on work/procurement, thus enabling accountability and control of budgetary allocation. All procurement and tender process data is captured in a database with detailed audit trails, allowing Ministers and Department Secretaries to note progress of tenders, projects undertaken, bid data, etc. and to specifically hold operational staff accountable for each and every tender, whether it relates to bidding, tender procedure, project progress, etc. The public is able to see the nature and size of works/projects being undertaken, the contracts being awarded, and winning bid details. Bidders themselves are able to spot discrepancies or wrongdoings in a tender process they are involved in, allowing them to take action. The system therefore supports both internal and external transparency.

Role of ICT

The system is an internet-based dual-language electronic tender management system operating on an Application Service Provider basis. It allows for total-online or semi-online operation. The latter is needed because many sub-district level government offices and many vendors have poor internet connectivity (e.g. those based in semi-rural/rural areas). The offline software component mirrors the online system (including its PKI architecture and proprietary security system), and resides on a local PC, typically housed in a kiosk. Tenders or bids can be prepared locally on the PC, then encrypted and compressed. Users are then able to either go online and upload the data at times when connectivity is available, or alternatively burn the data on a CD and send it physically for remote uploading.

Application Drivers/Purpose

The main objective purpose behind introduction of electronic tendering/procurement was to improve the transparency of the tendering process, and to bring the benefits of Internet connectivity: anytime/anywhere access for those connected, and improved efficiency of transparency. The project was also intended to cut down on the public sector's biggest tender processing costs - advertising, preparing, printing and disseminating tender documents, and then processing bids - both in terms of money and time.

The application was also driven on by pressures from multilateral funding agencies such as the Asian Development Bank and the World Bank, who now tie in transparency to their assessment of funding for governments. The state government secured a US$300 million loan from ADB shortly after this project contract was awarded. Doubtless this project contributed in some way to the ADB panel's decision. Therefore, these external pressures are forcing governments - whether their officials like it or not - to examine electronic tendering. This pressure is intensified by the fact that most state governments in India are virtually bankrupt and need to compete for external borrowings. Adopting applications like e-tendering has been seen as a lever to help access such external funds.

There can also be domestic political drivers - governments can be susceptible to arguments that failure to make progress on good governance may provide ammunition to opposition political parties. eTendering systems can be projected as a way of making headway on good governance.

Stakeholders

Within the state government, the key stakeholders would be identified as - at senior level - the Chief Minister and Department Ministers and Secretaries. Departmental managers, technical staff and clerical staff have also been affected by, and involved in, the project. Externally, vendors seeking to sell goods/services to the state are the key actor. The public at large also have a role to play, including civil society organisations that seek to act on behalf of citizens, in potentially monitoring procurement processes. Nextenders, the application designer, is also recognised as a stakeholder.

Transparency and the Poor

There has been no direct support for transparency to the poor, since the service is primarily targeted at government-to-business links. There are two potential indirect benefits for the poor. The system reduces the barriers to entry in tendering for government contracts; it can therefore assist small-scale enterprises which may have more direct links to poor communities than larger enterprises. The system also includes tendering for public works projects that impact poor communities. By potentially reducing the leakage of budgetary allocations, the system may help increase the amount of expenditure and infrastructure that benefits poor communities.

Impact: Costs and Benefits

System costs are confidential, but can be estimated to be more in the five figures than seven figures range of US$. These costs are derived from the construction of tender documents in online/offline form; maintenance of the portal to serve documents and receive bids; and the cost of maintaining data security. There has also been a one-time cost in the creation of a set of kiosks that support the 'semi-online' mode of operation. However, as noted below, these costs are not charged to government, but are recovered from business users.

There are no grounded figures on benefits. However, there are estimates that e-tendering might save vendors approximately 70% in their costs of transaction (e.g. eliminating travel, courier costs, bribes, etc). Estimated savings for government are as follows: advertising cost savings can be reduced by approximately 75%, and printing costs by approximately 90%. There will also be improvements in the speed of the tendering/procurement process.

As noted above, there are likely to be transparency savings in the elimination of the corrupt 'risk premium' that those seeking government contracts find themselves having to pay; this is generally estimated at between 2% and 10% of contract price. Since this payment is always factored into a vendor's budget in normal tendering, this cost saving should also be passed on to government.

Overall potential savings are massive. It is estimated that not less than one million tenders are floating annually by Indian central/state government and public sector organisations (excluding Indian Railways and the Ministry of Defence). This represents a total procurement budget of not less than US$50 billion, of which some proportion is spent on the costs of the tendering/procurement process.

Evaluation: Failure or Success?

There has been no formal evaluation of the project to date. Informal feedback has mostly been very positive and encouraging from both vendor and government sides. The big challenge is actually getting government users to work on PCs. Once that is established and their fears of technology assuaged, they rapidly come to appreciate the merits of the system and how it eases their workload and improves productivity. Users in government departments have said off the record that "work has now become more enjoyable".

Enablers/Critical Success Factors

1. No overt cost to government . The service is provided free of overt charge to the government. Costs are recovered from the charges for tender documentation made by the system vendor to businesses seeking to tender. These fees vary, but are - as a rule of thumb - around one-third of the fees charged to businesses under the paper-based system. Firms without computers can still access copies of documents by paying the traditional paper fee and then accessing and completing the documents in the 'semi-online' mode noted above at one of the chain of kiosks created by the system vendor. The system has therefore been promoted to government as a no-cost way of reducing government costs, and of increasing government transparency.
2. Inclusive access . The project has been supported because it has taken steps to avoid marginalisation of potentially excluded users. As noted, the system of kiosks and semi-online access has helped avoid exclusion of at least some vendors who lie on the wrong side of the 'digital divide'. The dual language of the system also helps strengthen inclusion.
3. System security and trust . A proprietary tamper-evident security system has been incorporated into the e-tendering application, which greatly reduces security problems, including those that might arise between the government buyer and 'favoured' vendors. This has helped tremendously in getting vendors to buy into the new system, since their biggest fear has been collusion between government staff and particular businesses.

Constraints/Challenges

1. System vendor investment/risk . This e-transparency system has been provided using an innovative application service provider model. Such an ASP approach requires considerable investments to be made upfront by the system vendor. The slowness of government decision-making, including post-contract, adds tremendously to vendor costs and increases business risks. For example, sometimes government tender rules as well as forms need to be modified for e-tendering. This requires departmental approval as well as legal department approval. Getting this done can take some months, and before approvals are in place the system cannot be started due to legal and procedural risks. During all this time, the system vendor must bear the costs without - due to the cost recovery approach adopted - any income.
2. Lack of ICT skills among senior officials . Computer illiteracy is prevalent amongst senior bureaucrats, who have traditionally relied on juniors for their electronic data-entry activities. However, the tender management system requires decision-makers to make direct use of the system. This increases implementation lead-times since senior officers need to be trained on basic computer usage before system implementation can actually start.

Recommendations

1. Get buy-in from all government stakeholders . You need to get total buy-in from government users, both top-down (i.e. Chief Ministers and Department Secretaries) as well as bottom-up (i.e. technical staff and clerks). This means demonstrating value to each level of the government hierarchy, which can take time and require patience. However, the benefits of doing this are considerable, because it reduces your time to implementation and revenues, and reduces project risks.
2. Design using procurement best practices . For example, use World Bank procurement guidelines as the basis for the e-transparency system to ensure that you can never be sidelined by vested interests. Adhering to such guidelines in system design can help provide access to donor funding. This access to funding can be a lever strong enough to conquer the self-interested concerns of some state officials who see transparency as a threat to their self interest.

Further Information

tapan@nextenders.com

World Bank procurement guidelines:
http://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/PROCUREMENT/0,,contentMDK:50002392~menuPK:93977~pagePK:84269~piPK:60001558~theSitePK:84266,00.html

Case Details

Case Editor : Richard Heeks.
Author Data Sources/Role : System Developer Role.
Centrality of Transparency : Mixed. Type : Transaction. Audience : External. Content : Contractual. Sector : Multiple.
Outcome : Too Early to Evaluate.
Region : South Asia. Start Date : 2003. Submission Date : December 2003.