How flawed tender system is destroying Indian Railways

Just a few hours after the stampede on Friday at Mumbai’s Elphinstone Road Station that killed 23 people and left 38 injured, the railway authorities announced that they had floated a tender to build an additional foot-over-bridge to alleviate pedestrian congestion. It was yet another classic case of the railway bureaucracy acting too late.

The new foot-over-bridge (FOB) will connect Parel Station on the Central Railway (CR) and Elphinstone Road Station on the Western Railway (WR).

Commerce and Industry Minister Suresh Prabhu, who was railway minister until September 3, sanctioned the construction of the new FOB in 2015, but it failed to materialize. In a statement issued after the stampede on Friday, Prabhu  said, “The lackadaisical working of the railway administration is responsible for the tragedy.”

Prabhu said that on on April 23, 2015, he approved the allocation of Rs11.86 crore for the construction of a 12-meter-wide and 10 meter-long FOB. “Had the administration cleared the proposal in time, issued the tender and appointed a contractor, this incident wouldn’t have happened and innocent lives would not have been lost,” the statement said.

Prabhu’s scathing remarks highlight what ails the Indian Railways (IR) –callous railway bureaucrats and a flawed tendering system.

In an attempt to maintain transparency in awarding projects to private companies and contractors, IR has employed the tendering system for several years. While the railway administration has more or less been successful in establishing a transparent procurement system through tendering, it has failed to achieve high safety and quality standards due to the age-old L-1 (lowest commercial bidder) policy on awarding contracts.

How the tendering process works:

Typically, whenever a project is announced, the railway authorities float tenders. Depending upon the size and sensitivity of the project, they float either local or global tenders.

Normally, local or domestic tenders are single-packet system tenders. This means the tender must be awarded to the L-1 bidder, irrespective of whether the bidder meets all technical requirements regarding quality and safety.

Large-scale or global tenders are floated on a two-packet system basis. This means all the bids are first evaluated on their compliance with technical requirements of that particular tender and are short-listed. In the next round, commercial bids of only the short-listed bidders are opened and the L-1 bidder wins the contract, irrespective of the bidder’s level of competency amongst the short-listed technically suitable bidders. Even in this process, the tender is eventually awarded to the bidder who has quoted the lowest price.

After this, the tender proceedings come to an end and a letter of acceptance is issued to the L-1 bidder.

Where the problem lies:

•      For almost all tenders, the qualifying criteria are diluted so that more and more companies and contractors can participate.

•        Not all tenders involving critical purchases related to passenger safety are floated on the two-packet system.

•        An L-1 bidder is awarded the contract irrespective of competency and quality standards.

•        There is no system of gradation of companies/contractors in terms of technical suitability, which would see preference given to the best ones.

•        To win a contract, contractors make unrealistically low bids. Once they win the contract, they provide poor-quality material, workmanship and services, which can directly affect the safety of commuters.

•        Fearing the scrutiny of the vigilance department, tender committee officials knowingly overlook deviating technical requirements and without taking any risk, award the contract to the L-1 bidder.

•        No official is willing to take the risk of bypassing the L-1 bidder, even if the bidder has a poor performance history and has also wilfully compromised technical aspects of the tender.

•        For example, if a tender is floated to execute a contract estimated to be worth Rs 1 crore, and the L-1 bidder quotes Rs 55 lakhs, the L-1 bidder will win the contract because it is the lowest price. However, it is quite clear that the execution will not meet the quality and technical specifications requirements.

•        Officials are reluctant to blacklist defaulting contractors due to lengthy legal procedures. This means defaulters can participate in other IR tenders.

•        Once the contract is awarded to L-1, the bidder fails to deliver as per technical requirements and tries to provide cheaper alternatives to make more money,  thereby compromising passenger safety.

•        There is no mechanism by which railway officials can keep a regular check on the quality of work the contractor is doing once a contract is awarded.

•        In most of the tenders, the technical specifications are merely copy-pasted from previous tender documents or from other zonal railway projects. For example, the technical specifications of one FOB may differ from that of another, but in most of the cases, the specifications are merely copy-pasted, which results in poor-quality work.

What is the solution?

•        Tender procurement policies should be changed so that the railway authorities are able to procure high-quality goods and services at a reasonable price.

•        A gradation system for technically suitable bidders should be introduced, and preference should be given to those who make the top technical bid rather than the ones who quote the lowest price.

•        Qualifying criteria should be made more stringent to filter out defaulting and poorly performing contractors.

·•       Procurement policies should be framed in such a manner that the best technology available across the world with regards to passenger safety is utilized.

•        Officials need to be empowered to disqualify defaulting and poorly performing bidders/contractors, especially in cases where the quality of goods and services is found to be compromised in terms of passenger safety.

•        High-level maintenance of all critical equipment involving passenger safety should be ensured at all levels.

•        The defense or aviation model of giving priority to the best technically suitable bidder and not just the lowest one should be adopted.

•        Performance and quality checks should be performed by the railway authorities or the nominated inspection agencies during various stages of the execution of the contract until completion.

•        Officials should be held accountable for any impact on public safety resulting from delays in floating tenders, as well as the awarding and fulfillment of contracts.