Now that the opposition from the finance ministry has got the government to scrap Clause 3.5.2 from the Request for Qualification (RFQ) for highway projects, it is widely assumed the same will happen in other infrastructure sectors — ports, railways, airports and so on — where PPP projects are being planned as well. So what exactly is Clause 3.5.2 and does it really matter if it is scrapped?
The offending clause is actually quite innocuous and all it says is that bidders will be ranked on the basis of their aggregate scores on past experience in infrastructure projects and the top five (with a possible one more) will shortlisted and asked to submit their financial bids! But since this clause has caused so much of a furore within the government, perhaps it’s a good idea to explain the spirit behind the RFQ (http://www.infrastructure.gov.in/pdf/model.pdf ) that was put out last December.
The RFQ, it must be remembered, was first put out in the context of the blatant favouritism that took place in infrastructure projects under the guise of what’s called technical qualification. In the Delhi and Mumbai airport privatisation, it is well-known, marking was done in such a way that it ensured that just two bidders qualified on technical grounds — and since each firm could get only one airport, it virtually assured one airport to each of them. Later, it was found the entire process was flawed and designed to ensure the Anil Ambani group somehow qualified on technical grounds. It was found, for instance, that the evaluation criterion gave higher marks to criterion such as improving the morale of existing Airports Authority of India staff and career planning for them and so on, essentially criterion that rewarded bidders for the quality of management jargon they could put together. While this case was widely publicised, subjectivity has been a problem with most such projects, the specifications for which are, often enough, written in a manner as to favour some bidders.
The RFQ then came up with fairly objective and transparent measures and a scoring system that the bidders themselves could calculate their score — in an airport bid, for instance, the relevant benchmarks are how many airports the consortium has developed/built in the previous five years, and ditto for other infrastructure projects. If a firm has no infrastructure experience of its own, it can tie up with other firms and get credit for their experience, with the caveat that each partner whose experience is to be counted has at least a 26 per cent stake in the consortium — that is, as has happened in the case of telecom and airports before, small local firms (Bharti/GMR were small when they got into their respective sectors) can continue to tie up with foreign partners with experience in various sectors to be able to score well on technical grounds. In each case, the weights are stated up front and each answer is a statement of fact, with back-up documentation. So when the final technical scores are out, each bidder knows whether or not they’re correct. This is important because, while Ficci/CII have asked for some change in weights to help local firms, there haven’t been too many violent protests against the obviously more transparent and simple technical evaluation process. So, even if Clause 3.5.2 gets removed in other infrastructure areas, a large part of the favouritism has been taken care of.
It is once this scoring is done that Clause 3.5.2 comes in. Let’s say there are 10 bidders, each getting marks from 100 upwards — 100, 200, 300 ... and 1,000. What 3.5.2 says is that only those five bidders with 600 marks and above will be asked to submit their financial bids (and perhaps the bidder with 500). This is what the finance ministry had objected to — why not, it said, also allow the person with 100 marks to bid as long as that firm also meets the minimum qualifying cutoff of 100.
At one level, why not indeed? If there are more bidders, the financial bids will be more competitive and, assuming the bigger firms will also be the higher scoring ones, having more bidders will also ensure smaller firms will get a chance to bid for big infrastructure projects. Also, since there are pretty stringent quality standards laid down anyway, any firm which wins the bid has to adhere to them, so why just invite a handful of firms to make financial bids?
If you believe the principle behind PPP is to get good infrastructure projects going and not to get enough projects for even the country’s smallest firm, then it is clearly better to have the consortia (which, it must be remembered, can comprise the country’s smaller firms as well!) with the higher scores enter the final lap. For a variety of reasons. One, these consortia have a better track record of quality — in any case, since a PPP project typically involves the complete running of a facility for 40-50 years, there’s no real way quality standards can be monitored by anyone else (in the Delhi and Mumbai airports, how much can AAI keep monitoring the new franchisees’ operations considering they control every aspect of the airport?). The higher scoring consortia are also, typically, going to be the ones who’re financially better off and so should be in a better position to ensure the projects are executed in time.
In other words, now that we’ve got so far in trying to achieve a greater degree of transparency, it would be a pity to dilute the process.
