Are Public Works Immune From Competition Law?

Public procurement of goods and services, including public works activities, constitutes about 30% of India’s GDP, with the total annual expenditure of about Rs 15-20 lakh crore and that for the Union Government alone it is in the range of Rs 2.5-3 lakh crore. The requirement of public works is large and entails a huge expenditure of the Government. It is imperative that public procurement should be executed with economic efficiency and with a minimal cost to the public exchequer. This can be ensured only when the 27 Central PSUs involved in construction and consultancy business are made to compete with each other and also with private players. No one doubts their expertise and experience but the excessive service charges recovered by the PSUs from the user or buyer departments in the absence of competition are a matter of concern.

- MM Sharma

It may be pertinent to mention here an example of the Kerala Govern-ment. Taking note of higher costs generated due to the award of contracts to PSUs on a nomination basis during 2009-12, the Government conducted a thematic audit and found that because of the absence of any competition the PSUs were also not able to complete their works within time and cost overrun. So there was no mechanism available with the Finance Department of the State Government to ensure that quality was maintained in respect of works executed by PSUs. The Finance Department did not exercise control over the concessions and privileges extended to PSUs and was not able to ensure that the benefits were not enjoyed by ineligible contractors. Consequently, the Finance Department issued stringent guidelines prescribing accreditation of the State PSUs by a high-level committee before becoming eligible to be considered for government projects and restricted the award of project contracts by nomination by only such departments or autonomous bodies which did not have any permanent engineering wing to only such PSUs (both of the Centre and the State) which agreed to follow the Kerala PWD manual. Further, it fixed the PMC cost at 5% for all such projects with an estimated cost exceeding Rs 5 crore and a maximum PMC cost of 8% for projects for all works below Rs 1 crore. The other State Governments need to consider emulating the Kerala example.

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