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To bid or not to bid


Tavinderpal Singh Sidhu, Sr Associate, and G M Padma Priya, Associate, M V Kini (Delhi) are concerned that the amendment to the MCA might just create a cartel of developers

The question assumes significance in view of the amendment made to the new Model Concession Agreement (MCA), which has formed the basis for the Government to award projects within the Public-Private Partnership (PPP) model.

Earlier, the government awarded projects to those bidders who cleared the Request for Qualification (RFQ), as also the Request for Proposal (RFP) stage. The applicants after being qualified were eligible to bid at the RFP (tendering) stage. Now, the new selection criteria for the PPP projects envisages invitation of financial offers from only a limited number of pre-qualified applicants, being around five, at the end of the RFQ stage.

According to the new scheme, the pre-qualified applicants thus selected are those who rank the highest on the basis of their respective ‘Aggregate Experience Score’, which is the sum total of the experience score of the said applicants of all eligible projects as defined in the RFQ documents. 

The objective was to ensure that projects of public importance are entrusted to the most competent, experienced and established players in the industry. It also stems from past experience when dismal performance by inexperienced and incompetent contractors had thwarted key development projects and a number of firms have even had to be blacklisted.
On the flip side, it may preclude bidders qualifying at the RFQ stage from competing at the RFP stage, after meeting the basic experience criterion of RFQ, on the sole premise that the five qualified bidders top the experience criterion, thus giving rise to fear of monopolisation by big corporate players. This leads us to the crucial question: Will the new selection criteria that was undoubtedly guided by national interest, survive legal scrutiny?

It is not just baseless anxiety but a realistic prediction backed by cogent reasons that the new method, which gives weight to international and domestic experience and considers the high net worth of a company, may result in the award of contracts to just five-six players giving them a monopoly over all construction projects across the country. When on the contrary, the competition law regime of the country is designed to prevent practices having an adverse effect on competition and to promote and sustain competition in markets.

The Monopolies and Restrictive Trade Practices (MRTP) Act specifically states that any agreement which restricts, or is likely to restrict, by any method the persons or classes of persons to whom goods are sold or from whom goods are bought, is one of the categories of a registrable restrictive trade practice.

The Competition Act, 2002, is also similar in its spirit. As a matter of fact, almost all the developed countries, have adopted stringent anti-competition laws, which are scrutinised closely by the authorities throughout the chain of a project (that is, from bidding stage to market practice). Considering that the prevailing competition laws prohibit such agreements that cause or are likely to cause an appreciable adverse effect on competition within India, to justify the new selection criteria is an uphill task.

In the long run, the new selection method may result in a situation where only few firms in the market would qualify for a project and be eligible for bidding, thereby making it extremely difficult to avoid bid rigging. It may also lead to an abuse of “dominant position” and cartelisation by the top players, which is also prohibited by the existing competition laws.

The trend of judicial decisions indicates that while entering into contracts with a private party, even if for public purpose, the government cannot do something that is prohibited by the laws of the land and that while awarding contracts, any act which excludes competition from any part of the trade or commerce by forming cartels should not be permitted.

A class within class

In fact the new selection criteria may put into motion a vicious cycle, where only the top players of the industry would qualify to bid, which in turn would further strengthen their chance of qualifying successfully in the top 5-6 bidders for future projects as wells. Chances for newcomers or smaller players to qualify would only get bleaker, even though they may meet the necessary technical and financial requisites and quote lowest.

The new MCA brings to fore not only the tussle between the small firms and the big giants of the infrastructure industry, but also gives rise to apprehensions of monopoly of foreign companies in new infrastructure projects, to the exclusion of local players.

With more weightage given to development experiences where foreign firms will naturally score over domestic construction companies, foreign players will have an obvious lead in bidding for novel in the country such as modernisation of railway stations.

The new policy of selecting bidders based on their Aggregate Experience Score is perceived not only as uncompetitive, restrictive and against established international practice, but also as unconstitutional. Rashbehari Panda vs. State of Orissa is one such case heard by the Supreme Court where the Government of Orissa took a decision to invite only those individuals who had executed contracts without defaulting in the previous year.

This action was challenged by those left out. In its judgement, the Court tested the validity of the schemes adopted by the Government of Orissa for sale of Kendu leaves in the light of Article 19(1)(g) (right to trade and occupation) and Article 14 (right to equality) of the Constitution of India. It was held that such schemes that restricted the right to make offers to only a limited class of persons was ex facie discriminatory, and imposed unreasonable restrictions upon the right of persons, other than existing contractors, to carry on business.

Consequently, the impugned schemes evolved by the Government were declared to be violative of the fundamental rights of the petitioners under Article 19(1)(g) and Article 14 as they resulted in a monopoly of certain traders in the trade in Kendu leaves, and singled out other traders for discriminatory treatment.

One can also not rule out the possibility that the new MCA may create a ‘class within class’ that perpetuates artificial inequalities, thus violating Articles 14 and 16 of the Constitution. In other words, the bidders who qualify on their financial strength and technical criteria form a group in themselves and any other further sub-classification to restrict the group to 5 or 6 bidders may not find favour with the judiciary.

It is the duty of the State under Articles 38 and 39(c) of the Constitution to check concentration of wealth and to ensure that ownership and control of material resources of the community are so distributed as best to sub serve the common good. No wonder then that the new model selection criteria has become a contentious issue between infrastructure companies and the government in recent times.

The matter being sub-judice in the Delhi High Court, only time will tell whether the new norms that were in fact a reflection of the government’s endeavour to ensure quality and discipline in infrastructure projects, would withstand the test of law.

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May 2020
11 May 2020