An Introduction to e-Procurement Archana.G.

Gulati

I. E-Procurement We Cannot Afford To Be Uninformed About It Anymore The GOI Office Memorandum No.8 (5)/EII (A)/2006 dated 10.1.07 (Annexure II)on the subject of mandatory introduction of eProcurement requires that:

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In respect of all goods covered under the rate contracts (RC) concluded by DGS&D, the Ministries should commence placing orders through the website of DGS&D as soon as possible. This would become mandatory from 1.4.07. In respect of other goods as also for procurement of works and services, the Ministries/Departments may make their own arrangements for switching over to mandatory e-procurement beyond identified threshold limits w.e.f 1.4.07 with certain compliance norms Single Portal for e-Procurement Planned

As reported by the Times of India, the Union Government is examining the creation of a single portal for e-procurement of materials for the consumption of all its departments and agencies. Although top-level officials in the Government are reported to have expressed divergent views on the issue, available indications suggest that a single portal for the Government buying through e-procurement route will be in position shortly. The objective of e-procurement is to eliminate aberrations and malpractices in the existing procurement procedure through paper-based tendering. Revealing this on 24.2.07 at a seminar on E-procurement A strategy for global sourcing, organized by the Indian Institute of Materials Management (IIMM), the Director (Vigilance) of Directorate General of Supply & Disposal (DGS&D), said that all government departments and agencies put together might buy materials worth about Rs.5 lakh crore per annum. The procurement was expected to be made through e-procurement route in order to maintain transparency of every purchase, he felt. Referring to the procurement policy of DGS&D, which comes under the administrative control of the Union Ministry of Commerce, he said his organization had already started buying from vendors through e-procurement from the 2000-05 fiscal. The organization has stopped procurement through paper bidding of at least about 20,000 items, while it has plans to buy all items through e-procurement in phases. II. What is e-Procurement? Electronic Procurement is a web based process that enables enterprises/government departments to manage their purchases online, across the entire requisition to payment cycle. A comprehensive e-procurement system includes three components: information & registration, e-purchasing and e-tendering. It creates specialized networks of suppliers on the internet where one can place request for proposals (RFP)/ post tender documents, exchange specifications and receive bids and approve quotations. E-procurement solution enables organizations to automate their purchasing process and reduce processing costs. With the web enabling one of the critical areas of business process, organizations can now have access to new strategic partners, uncover new suppliers and streamline purchasing processes while simultaneously lowering the cost. Adopting an e-procurement solution could save on the money, time and labour that are normally wasted on sieving through reams of paper. While implementing the e-procurement solution a government organisation can adopt best practices and set procurement rules as per government rules and latest orders on the subject e.g. for approval routing etc. The e-procurement system also captures data that is vital for creating more effective strategic supplier management; it also produces reports on product use and supplier performance. Thus the organization is rendered more efficient and more productive. Traditional purchasing of operating resources office supplies, equipment, and software can account for 50-70% of total operating expenses of an organization. Most organizations have decentralized their procurement operation across multiple business units with a couple of thousand suppliers and an average of five to six contracts per supplier. E-Procurement affords us the opportunity to simplify & streamline this process and thus harness the power of the web to ensure savings for organisations. To Sum Up E-Procurement is the purchasing of goods and services using the internet. Covers full life cycle of purchasing (indent to receipt of goods)

Connects buyers and suppliers through electronic exchange of tenders, catalogs, contracts, POs, invoices etc Includes a variety of techniques such as RFPs (Request for proposals), quotes, auctions and reverse auctions. Electronic Tendering is carrying out the traditional tendering process in an electronic form, using the internet. Using etendering Departments can: Raise indents as per the requirement. Approve indents online. Create and publish NIT (Notice Inviting Tender) Sell tenders Receive bids Award contract / PO (purchase orders) Evaluate tenders Using E-tendering, the suppliers can 1. 2. 3. 4. III. Possible Benefits from E-Procurement Receive notification of the relevant tenders Purchase tenders document Submit bids online Track the status of their bids

An e-procurement system increases transparency and probity by keeping a traceable electronic record of transactions online. eprocurement systems help organizations consolidate data on procurement of various goods directly or indirectly. These data enable them to go in for bulk purchases and negotiate with suppliers for greater discounts. Instead of 20 different independent units of the department buying a particular product in small numbers, a centralized and well networked procurement system in the organization would help track the periodic demand for the product and bulk purchase orders can be made accordingly. If the organization can easily demonstrate to the supplier that there is a consistent demand, it can successfully leverage its purchasing orders. Moreover, by channeling all orders for certain supplies through a specified route, the purchasing organization can reduce the number of transaction needs for these items. IV. e- Procurement and the Government (i) A Unique Model e-Procurement is a part of G-2-B (Government to Business). G-2-B consists of the electronic interactions between Government agencies and private businesses It allows e-transaction initiatives such as e-Procurement and the development of an electronic marketplace for government. The e-Procurement process of unique government would be unique. While corporate purchasing concerns supplier management and is driven by business partnerships; government procurement remains dedicated to leveling the playing field between competitors by use of the sealed competitive bidding and awarding bids to the lowest bidder meeting specification. government records are open and the prices revealed in the public arena. Thus, under public scrutiny, public purchasers must attempt to conserve the taxpayers money in an open arena. Fortune 500 companies boast of maintaining a key supplier base of 10-15 first and secondary suppliers which is miniscule to what a government has as registered vendors and the many more who had bid, but never make it to the vendor list. Given this divergence, government has to adopt e-procurement solutions that take into account the above factors. Government must forge its own model of e-procurement and, by doing so, encourage the competition so heartily sought. The deluge of requests via the Internet from companies seeking to compete will have to be managed. Government must create a model that pays for itself, maximizing the taxpayer contribution without damaging small and emerging businesses. Government

must implement a solution that tweaks the procurement cycle without paralyzing other functions. This e-procurement process recommendation should improve the procurement cycle without upsetting the government policies and procedures necessary to the successful governance of the populace and businesses. (ii) A Unique Value proposition The value proposition of an e-procurement solution for a government department includes: Ensures economy and efficiency in procurement- Reduction in costs, (which could go up to around 20-25%), can be accomplished through efficient processes like expansion of supplier base, better price negotiation and shorter procurement cycle, thus reducing inventories. Through an easy and effective reporting and analysis tools, one can improve efficiency in report maintenance, check maverick buying and create seamless data integration. Clarity of specifications and adherence to time frame are other benefits. Promotes competition among bidders Provides equitable treatment of bidders Promotes fairness and transparency in bidding offers system can be designed to factor in

Further from a Government Departments perspective e-procurement all Rules and Orders on the subject such as: 1. Rules relating to procurement in GFR 2005 2. 3. 4. 5. 6. Policy preferences for PSUs/cottage and small industries CVC Guidelines C&AG observations Delegation of Powers Best international practices

Last but not least, e-Procurement holds the potential to free the civil servant from endless paper work and familiar worries relating to inadvertent non compliance to above requirements. (iii) Unique Challenges One of the main challenges for an e-Procurement project is the establishment of an appropriate and context tailored strategy. Every project or initiative needs to be rooted in a very careful, analytical and dynamic strategy. This is likely to be a very difficult task, requiring a focus on many aspects and processes, a holistic vision, long-term focus and objectives. Many public institutions limit their activities to a simple transfer of their information and services online without taking into consideration the re-engineering of processes needed to grasp the full benefits. The government must have a clear strategy to overcome the barriers to change. Part of the strategy is to engage in a rigorous assessment of the current situation, the reality on the ground and the inventory of projects, articulate costs, impacts and benefits of programme as well as continuously monitor and evaluate the project upgrading. Borrowing a lesson from the private sector, eProcurement must be customer-driven and service oriented. This means that a vision of e-Procurement implies providing greater access to information as well as better, more equal services and procedures for public and businesses. (iv) What the Government needs to do For successful implementation of an e-Procurement initiative the government must ensure that the following parameters are taken care of, in the solution which they intend to implement: 1. Analyze Accurate, thorough analysis provides:

 Expenditure visibility: know which suppliers are used for the most expenditure and what departments generate demand across all expenditure categories. Opportunity identification: Departments can readily determine key areas for expenditure improvement and supplier management Expenditure and supplier management strategy: Comprehensive data on supply-side market microeconomics, supplier performance, and contract compliance enables departments to develop a cohesive, effective strategy. 2. Source Efficient, in-depth sourcing provides: Supplier management: Knowledge about existing supplier performance and complianceand access to qualified new suppliersallows departments to drive expenditure towards the best suppliers. Win-win contract collaboration: Detailed information exchange enhances the purchase transaction; buyers can assess supplier bids on multiple attributes in addition to price. 3. Contract Effective contracting delivers: Centralized contract management: Creating a central repository for all enterprise contracts gives even large, fragmented departments better expenditure visibility and the chance to aggregate expenditure across divisions/units. Improved compliance: A centralized, accessible location for all contracts and catalogs along with rapid workflow and approval capabilities enhance both end user and supplier compliance. Higher accuracy and control: Electronic support of contractual terms reduces errors and ensures that negotiated pricing, discounts, and terms are delivered. 4. Procure Efficient procurement provides: Streamlined purchasing: Automating procurement enables departments to eliminate paper driven processes and expedite workflow and approvals for all purchases. Better supplier access and communication: Online access to a large pool of global suppliers allows departments to locate and effectively interact with the suppliers best qualified to meet their needs. High end-user and supplier compliance: Automated requisition and purchase order management capabilities for all participants and commodities increase department-wide compliance and boost savings. 5. Settle Effective settlement offers companies: Shorter cycle times and fewer errors: Automating invoice creation, submission, and reconciliation improves speed and accuracy and minimizes problems. Early payment discounts: Faster bill settlement through accurate invoicing procedures allows departments to qualify for extra savings from early payment discounts. Improved buyer-supplier relationships: Fewer invoicing disputes and rapid, correct payments improve cash flows and enhance relationships between buyers and suppliers. IV. e-Procurement Successes Stories and Possible Role Models in India: In order to appreciate the various conceptual and actual steps involved in e-procurement it is useful to study how the Indian Railways department went about it: A. Indian Railways(IR) E-Procurement was adopted by Railways as a part of overall reform process. Northern Railway successfully implemented EGP for Supply tenders from May 05. 25 Railway Units to adopt EGP covering entire Indian Railway. Railway plan to develop single portal for entire procurement process covering all units on I.R.

Background E-Procurement was adopted by Railways as a part of overall reform process .

Northern Railway successfully implemented EGP for Supply tenders from May 05. 25 Railway Units to adopt EGP covering entire Indian Railway. Railway plan to develop single portal for entire procurement process covering all units on I.R.

Procurement policy I.R. have formulated well established procurement policies which have evolved over central theme of ensuring Transparency Fair play Quality procurement Competition & Equal opportunity to all eligible vendors. (http://www.nreps.com) Purpose & Definition E-procurement application provides a common platform using secured Web site where the buyer and the sellers can participate in the procurement process in fair and transparent manner The e- procurement system shall be governed by digital security features as provided under Indian I.T. act 2000.

Scope of Work The scope of work include: Uploading of Tender notices and Tender documents on secured website for Railways. Submission of digitally signed electronic bids for Data Integrity, Authenticity, Non repudiation, and confidentiality. Pre-designed interactive Tender forms for submission of offers online.

Security Features Introduction of Digital signatures for e-transactions. Introduction of Public Key Infrastructure(PKI) for data encryption/decryption . Time stamp by certifying agency. 128 bit S.S.L. (secured socket layer) for secured data transmission .

Recommended E procurement Trust tools Digital signatures and verification tools. Bid Encryption and decryption process.

Digital permission for E-Tender box opening. Interactive bid submission forms , to replicate bid submission. Bid evaluation before submission . Need for Digital Archive.

Trust Tools: Digital sig. + PKI These shall ensure demonstration of enhanced level of trust for : Authentication: Digital certificate of sender attached with each bid document . Integrity & Protection: By Hash check using same one way hash function and senders public key. Authorization: Only Railways authorized person can decrypt & open e-tender box.

Recommended E-Forms E Procurement application has following essential components Interactive commercial offer form. Compliance statement form . Deviation form . Performance & eligibility form . Attachments.

Major Issues need to be addressed are:

Application Inter-operability. Global participation with Digital Certificate. Lower level of Trust in EGP Integrity. Lack of initiative by Participative Industry. Multiplicity of E Procurement Sites. Non uniformity in E Procurement initiatives.

B. E-Procurement by Government of Andhra Pradesh

The Andhra Pradesh governments e-procurement portal boasts of an impressive figure of Rs 14,600 crores of transactions in 2005 as well as a savings of Rs 960 crores due to tender discounts in the same year. It has been reported that A.P Government officials feel that e-procurement helps avoid cartel formation, besides reducing inventory costs. It also creates a level playing field for suppliers and buyers. Among the central government ministries, Indian Railways has switched over to e-procurement. The tenders are published by the various departments of the Government of Andhra Pradesh. Using the E-Tendering System, the users of the participating department Raise indents as per the requirements Approve Indents online Create Tender Approve Tender and Publish Tender online (https://tender.eprocurement.gov.in/) Ensuring Security in e-Procurement-Learning from A.P Government Security The security features incorporated in the application would ensure that all activities are logged, no unauthorized person has access to data, all sensitive data is encrypted and system can be restore in a minimal possible time in case of a disaster or system crash. Audit Trail The Solution has to be so designed that all the activities, transactions and changes in configuration are logged and a log report is made available to the concerned people. Further, a log is also made available of activities at the database level thereby ensuring that a robust audit trail is always available of all the activities either at the application level or the database level. Data Encryption The solution supports encryption and all the price bids received against a tender are encrypted at the database level. Further, the login passwords of all the users and the suppliers are also encrypted at the database level. Secure Administrator Access To prevent an administrator from misusing his access privileges, the TMS requires two level password verification before allowing an administrator access to the admin module. The first password is provided by the administrator himself and the second password is provided by some designated senior person within the buying organization. The administrator will be authenticated on advanced technologies using biometrics. Process Validation The Solution has to be so architected that a user cannot view the commercial bid of a supplier till the technical evaluation of the tender is complete and the date & time specified for the opening of the commercial bid is due. Secured Socket Layer (SSL) Certificate The solution would use SSL Certificate for communication between the browser and the web server. This ensures that all the data is encrypted and cannot be hacked/misused by anyone Unauthorized Access - The entire solution is to be placed behind a firewall and intrusion detection system that protects it against unauthorized access and hackers

Key Lessons To Be Learnt From Experiences Of Other Developing Countries Such As Chile & Philippines 1. Even a country with a low internet penetration and relatively under-developed IT infrastructure, by taking small steps with manageable activities, within a relatively short time frame can adopt such new technology. What is required is the flexible approach with a possibility of tailor fitting the system and then making changes based on actual scales. When it comes to choosing a technology or system there is no need to reinvent the wheel. Customization of an existing is often much easier. The management of the project should always be in the hands of the e-procurement implementing agency so that they will gain ownership of the project and also will ensure that the local factors are taken into account while framing a strategy.

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Leadership must come from the highest level of the organization. The project champion must be able to harness the cooperation and commitment of different sectors or stake holders in this kind of project. An organization must have an intimate knowledge of its target areas for implementation of e-procurement. Each segment requires a distinct strategy and also has different service level expectations. Stakeholders will only use a new system if it adds value to them through the content and quality of the information presented and if the system and support services reach or exceed their service level expectations. Providing constant support and training can be vital in promoting the use of a new system. It is a better strategy to build incrementally on the basis of what have achieved in the previous stage as it allows time and space for amendments to address shortcomings, and for all stakeholders to adjust to the new system. Political will and support for the initiative and participation and negotiation among the key stakeholders (within and outside the organization) is important for successful implementation of such an initiative. A supportive policy environment also plays a pivotal role in running a project successfully. The latest GOI orders issued on 10.1.07, the IT Act, 2000 and RTI Act, 2005 achieve this aim as far as Indian Govt. is concerned.

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Conclusion There is no doubt that switching to e procurement is very beneficial for any organization and is especially significant for a public service organization. With the recent Government of India(GOI) orders in this regard, which mandate switch over to e- procurement for values above a threshold level (to be decided by the internal finance wing of the department), it is all the more critical that a departmental policy and implementation framework for the same is devised urgently. In this regard while it would be foolish to reinvent the wheel and look for a tailor-made, fresh application; at the same time, whichever application we chose to adopt will need to be customized, implemented in stages and subject to required modifications based on its actual working at each stage. We should actively look at models being followed by other Central Government/State Government Departments as also attempt to learn from the experience of other developing countries. The recent announcement by GOI of their plans to design and implement a central e-procurement portal is a very welcome one. In fact ideally (& wishfully!) speaking, a common e-procurement software designed by NIC in consultation with CVC. C&AG and Finance Ministry would be the best option. It could have built in design flexibility to accommodate individual departments needs.