How the New Procurement Framework Will Benefit 45.6 Million People in India

Jul 07, 2016
By Ravi Kumar, External and Corporate Relations and A K Kalesh Kumar, Governance Global Practice

The 45.6 million people who live in India's remote North Eastern Region face daily power shortages. So much so that last year, power consumption per person in the region was one-third of the national average. Now, thanks to a recently-approved power project, their lives are about to change.

What's different about the North Eastern Region Power System Improvement Project (NERSIP) is that it will follow the Bank's new Procurement Framework which came into effect on July 1. In fact, it will be the first Bank project to implement this historic reform. The new framework is designed to increase the flexibility, efficiency and transparency of the procurement process, to better meet the needs of client countries.

Until now, few power projects have been implemented in India's North Eastern Region, where a third of the people live below the poverty line. Rail and road connectivity is poor in this landlocked area. Power equipment is not available locally and has to be transported from outside the region. Some parts of the region are not accessible during the monsoon season, leading to high transportation costs. There is also a shortage of locally available skilled manpower.

Together, these factors have led few developers to bid for the region's much-needed power projects. The few that have done so in the past have charged amounts that are unduly high. This can possibly lead to price gouging by the bidders.

The Bank's earlier Procurement Guidelines offered limited flexibility for negotiating with the bidders. By contrast, the new Procurement Framework, with its flexible approach and wider range of options, has enabled the Bank to dramatically change its approach to meet a project's specific needs.

In this case, the new framework allowed the project team to introduce the methodology of seeking the "best and final offer (BAFO)." With this method, bidders are allowed to improve their proposals without changing the specified performance requirements. An electronic procurement medium is used to seek BAFO, which ensures high transparency. After disclosing how the bidders and their prices rank—by a method known as "dynamic template bidding"—they are invited to offer a lump sum price discount.

"The market conditions in [the Indian] power sector showed a unitary approach of not allowing negotiations with bidders as not the best option for the context. We could use the leverage of introducing BAFO for achieving best value for money, satisfying the client's demand, within our procurement regulatory framework," said Felipe Goya, practice manager with the Governance Global Practice.

"This project provides an excellent example to demonstrate the fit-for-purpose principle advocated by the new Procurement Framework," added Goya.

In other projects too, the Bank is helping clients take advantage of the new Procurement Framework.

For example, in Bhutan, Bank specialists have submitted the Alternate Procurement Arrangement (APA) for the government's approval. The new framework allows our clients to use an alternative procurement system that is efficient, and mirrors the Bank's procurement standards, even though it is different. Once approved, one of the Bank-funded projects implemented by Thimphu Thromde (City Corporation) will be restructured and use APA for the rest of the procurement process. Thimphu Thromde is one of the major implementing agencies in Bhutan for Bank-funded projects. They are considered to be one of the highest performing agencies from the procurement perspective.

"By transforming the Procurement Framework and introducing modern tools and flexibility, the World Bank is assisting its clients in developing a context-specific procurement strategy to better meet a project's development objectives," said Arun Kumar Kolsur, procurement specialist for the project in India.

Cover photo: Lack of access to reliable electric power is one of the main causes for low economic growth in the North East region of India. Photo credit: World Bank.