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I. Organization Framework

The institutional and legal framework for procurement in India is derived from the Constitution of India.  The Constitution vests the executive powers of the Union of India in the President of India.[1]  The President, by his order, and issuance of allocation rules of the Government of India,[2] vested the financial powers of the Indian Government in the Ministry of Finance.  These powers in turn are delegated to the subordinate authorities under the 1947 General Financial Rules, which were revised in 2005.[3]  

The General Financial Rules (GFR), developed by the Ministry of Finance, establish the principles for general financial management and procedures for government procurement.  The rules contained in chapter 6 concern the procurement of goods and services, while chapter 8 addresses contract management.  All government purchases must strictly adhere to the principles outlined in the GFRs.  The Manual on Policies and Procedures for Purchase of Goods[4] contains guidelines for the purchase of goods.  

There is no central legislation governing procurement in India.  Comprehensive rules and directives in this regard are contained in the GFR 2005 and Delegation of Financial Powers Rules (DFPR).  A broader framework is also provided by the Contract Act, 1872,[5] the Sale of Goods Act, 1930,[6] the Law on Arbitration[7] and Limitation[8] and the recent Right to Information Act, 2005.[9] 

As India is a union of states, each state, including the Union Territories, have their own rules, guidelines or legislation on procurement.  State governments and Central Public Sector Units (CPSUs) have their own general financial rules, which are based on the broad principles outlined in the GFR.  Some states have even introduced legislation for procurement, e.g., Tamil Nadu and Karnataka. 

The constitutionally appointed Comptroller and Auditor General (CAG) oversee the accounts of the Union and states.[10]  The reports of the CAG on Union accounts are presented to each house of the Indian Parliament, while those relating to the accounts of the states are presented to the legislature of each state assembly.  These reports also cover procurement.  The Parliamentary Accounts Committee (PAC), the Standing Committees and the Legislative Accounts Committees in the states oversee the functioning of the executive power. To ensure transparency in the process at each level of the Indian Government, a local fund audit for local bodies has been established.  Reports on the audits are presented to each state legislative assembly.  

Complaints of corruption and the vigilance administration of the central government are investigated by the Central Vigilance Commission, a statutory body founded as a result of the enactment of the Central Vigilance Commission Act, 2003.[11]  As a signatory to the U.N. Convention against Corruption, internationally, India has also pledged its commitment to the zero tolerance of corruption. 

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II. Procurement Guidelines

One of the objectives of the various procurement policies under the framework of the general principles contained in the GFR is to ensure responsibility, accountability, efficiency and economy.  The policies also ensure the transparent, fair and equitable treatment of suppliers and the promotion of competition in public procurement.  The cardinal principle in any public buying is to procure the materials and/or services of the specified quality, at the most competitive prices in a fair, just and transparent manner, as outlined in the Manual on Policies and Procedures for purchase of Goods,[12] issued on August 31, 2006. 

The competent authority invites tenders with a view to purchase goods and services.  Suppliers, including foreign companies, who are centrally registered with the Director General of Supplies and Disposal (DGS&D) and willing to compete, may submit tenders agreeing to supply goods of the requested specifications.  Indian agents who desire to quote directly on behalf of their foreign manufacturers/principals are also required to register themselves with the appropriate authority for submission of tenders. 

Evaluation of the tenders received is one of the most significant areas of purchase management.  The entire process of evaluation and contract awarding must be transparent.  The Purchase Officer is required to prepare a comparative statement of quotations received, in the order in which the tenders were received.  All tenders must be evaluated solely on the terms and conditions incorporated in the invitation for tenders.  No new conditions may be added at the tender evaluation stage; in this way no bidder may have an unfair advantage. 

If a minor informality/irregularity is found while scrutinizing the proposals, the purchase officer may waive the same provided it does not affect other bidders.  However, all such actions must be waived or approved by the competent authority.  Upon completion of the scrutiny, tenders are consolidated into a statement, in ascending order of the evaluated prices, so as to get a clear picture of their standing as well as comparative financial impact. 

Before awarding a contract to the lowest evaluated responsive tender, the purchase organization must ensure that the price to be paid is reasonable.  This may be determined by comparing the contract price with the price last paid for such item, the current market price, the price of raw materials, receipt of competitive offers from different sources, and the quantity of materials involved. 

Before placing an order with the successful bidder, the latter is informed in writing of the acceptance of his proposal and the time within which he is required to furnish performance security.  An individual who has submitted a tender for the contract may also complain about a grievance and be heard regarding any irregularity in procedure or otherwise which occurred while scrutiny of the tenders was being conducted. 

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Prepared by Krishan Nehra
Senior Foreign Law Specialist
March 2010

[1] India Const. art. 53. 

[2] The Government of India (Allocation of Business) Rules 1961, http://cabsec.nic.n/abr/abr_odr.htm (last visited Dec. 24, 2009). 

[3] General Financial Rules, 2005, (last visited Dec. 24, 2009). 

[4] (last visited Dec. 24, 2009). 

[5] No. 9 of 1872.  

[6] No. 3 of 1930. 

[7] The Arbitration and Conciliation Act, No. 36 of 1996. 

[8] The Limitation Act, No. 36 of 1963. 

[9] No. 22 of 2005. 

[10] India Const. art. 148-151. 

[11] Act No. 45 of 2003. 

[12] (last visited Dec. 28, 2009). 

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Last Updated: 07/31/2015