Abstract
This case describes a delay in the procurement of crawler dozers, a type of heavy earth-moving machinery, by a public sector undertaking of the Government of India in the mining sector. The chronology of events over 6 years highlights the underlying factors, including procrastination in initiating the procurement process, the time taken to prepare technical specifications, complaints from bidders and multiple-tiered queries. The most important learning outcome is that while arbitrary decisions are discouraged in any procurement, procrastination in decision-making should be equally discouraged. The case underlines the necessity of extensive, all-embracing standard operating procedures or definite guidelines.
It was a routine monthly review meeting in June 2023 at the headquarters of Hindustan Mineral Mining Limited 1 (also referred to as HMML or the company hereafter). Mr Anil Saxena, director (technical: project & planning), was chairing the meeting. The discussion began casually with the unbearable June temperature and continued with a stocktaking from all heads of the divisions at HMML. Saxena kept referring to his list of agenda items as he spoke to the heads, and soon, he started inquiring about the status of pending cases related to the procurement of equipment and plant and machinery. Mr Vijay Singh, heading the Equipment and Engineering Division, was to respond. Saxena’s voice reflected his keenness to know about a particular case related to the procurement of crawler dozers, which, to his surprise, had remained pending since 2017–2018, with a requirement that had grown to 45 as on date. Since Anil Saxena had recently been appointed as director, he was unaware of the background of this inordinate delay and therefore pointed his query towards Vijay Singh.
It was around 14 months that Vijay Singh was transferred to the headquarters from one of the mining command areas. There, he was primarily responsible for the overall upkeep of the entire fleet of equipment and plant and machinery deployed in that command area and for procuring low-value items such as consumables and spares. He had never in his whole career dealt with the procurement of equipment and plant and machinery, which are essentially of high value and considered sensitive. Because of his lack of exposure in this domain, Singh was largely dependent on his colleague, Mr Sunil Vishwanathan, general manager (Equipment Division), who was directly responsible for the procurement of high-value items. Although Vijay Singh could not readily respond to the director’s query, except for a superficial reply during the meeting, he assured Anil Saxena that he would brief him about the pending procurement of crawler dozers as soon as possible. Soon after the review meeting, Singh called Vishwanathan to reach his office immediately to get an idea about the case. After a detailed discussion, Vijay Singh directed Vishwanathan to submit a report on a priority basis, outlining the chronology of events and the reasons for the excessive delay of more than 5 years in a single case. Singh knew that all the mines were severely affected by the shortage of crawler dozers, and he did not want to be on the receiving end of any blame game.
COMPANY BACKGROUND
This case pertains to a company in the mining sector named Hindustan Mineral Mining Limited (HMML), a Miniratna Category I central public sector undertaking (PSU) of the Government of India. The headquarters of HMML are in Bhubaneswar, Odisha, and its operations are concentrated in the eastern region of the country. Any PSU is conferred with the status of a Miniratna if it has made continuous profits for 3 consecutive years, or has earned a net profit of ₹300 million or more in any of these 3 years. Miniratna status grants a PSU greater financial and operational autonomy, along with enhanced operational flexibility, enabling the PSU to compete globally, expand into new markets and contribute to the nation’s economic growth. HMML notched a net profit of around ₹8 billion in the last fiscal year. The Board of Directors of HMML comprises four functional directors under the chairman-cum-managing director (CMD). These functional directors individually oversee finance, personnel and two technical departments: Operations and Project and Planning. The Board also has two part-time directors from the Government of India and two part-time independent directors. HMML has a workforce of over 40,000, of which around 2,400 are in executive cadres. The company has over 13,000 highly skilled employees on its payroll.
PROCUREMENT POLICY OF THE COMPANY
E-procurement was introduced by the Government of India in 2011 and has been operational since 2012. The Ministry of Finance, Government of India, has mandated that all ministries and departments of the government shall switch over to e-procurement for items priced over ₹1 million in a phased manner. HMML adopted e-tendering around 10 years ago, switching from the earlier practice of manual tendering. Through e-tendering, the price offers of all bidders are usually opened in the electronic portal, and techno-commercial scrutiny of only the lowest bidder (Lowest 1 or L1) is done. If the lowest bidder is disqualified techno-commercially, then the bidder’s earnest money is forfeited, and the techno-commercial scrutiny of the next lowest bidder (i.e., L2) is carried out. Now the original L2 is considered the new L1. This case revolves around the procurement of crawler dozers (or dozers) that come under the fleet of heavy earth-moving machinery (HEMM) used in the mining activities of the company, specifically for moving earth material or mined minerals. The following subsections explain the company’s procurement policy for HEMM as a high-value item. The guidelines for surveying off and grounding such machinery are discussed first for better comprehension of the policy.
Policy for Surveying Off and Grounding of Heavy Earth-moving Machinery
According to company guidelines, all HEMM deployed in various mining command areas must be automatically surveyed off after they have served their rated life in terms of working hours and age. Rated life refers to the working life of any machinery as predetermined by the company. The guidelines require separate surveying-off notifications for each type and capacity of the machinery. The director (technical: project and planning) of the company is authorized to approve the surveying-off decision of machinery based on the recommendation of the head of the Engineering and Equipment Division. These surveyed-off machines may continue to operate at 50% of their projected capacity, with no significant repair costs.
Once surveyed off, if machinery suffers a permanent breakdown (involving high repair costs to return it to operation) or new machinery is received in place of any surveyed-off machinery, a proposal is initiated by the concerned mining command area for the grounding of the old machinery. This proposal is thereafter scrutinized by the Engineering and Equipment Division at the headquarters and put forward for the approval of the CMD. The final disposal of the grounded machinery is proposed for a later date by a committee of senior officers constituted at the mining command area level. This committee also determines the reserve value of the grounded machinery. Subsequently, the proposal for scrap disposal is forwarded for approval to the CMD. The procurement of machinery to replace those surveyed off is made after considering the present requirements vis-à-vis the remaining project life and upgrading the capacity of such machinery, following the company guidelines. Accordingly, a shopping list is prepared after due deliberation, and procurement action starts once the CMD approves this shopping list.
Procedure and Procurement Policy for Heavy Earth-moving Machinery
As discussed earlier, price offers are usually opened before the techno-commercial scrutiny in e-procurement. However, for the procurement of HEMM, which is known as a critical item, price bids are not opened in the first instance. Techno-commercial scrutiny is carried out first, and price bids of only those bidders who qualify in both technical and commercial bids offered are opened thereafter. Techno-commercial evaluation involves scrutiny of the commercial aspects by the Materials Management Department, while the scrutiny of a technical bid is conducted by the Engineering and Equipment Division (or the User Department). The Tender Committee, comprising the director (technical) as the chairperson and one member (with a general manager rank) from each department, that is, User, Materials Management and Finance, after deliberation based on scrutiny, forward their recommendation to the CMD. The CMD thereafter submits the same to the director (finance) for an audit of the procedures adopted, a cost-benefit analysis and a rationale for the price justification. The case file is then discussed by the functional directors and, on accord, is subsequently placed before the approving authority, which, in most cases, is the company’s Board of Directors, considering the usual high value involved in this kind of procurement.
CHRONOLOGY OF EVENTS IN THE DELAYED PROCUREMENT OF CRAWLER DOZERS
In 2023, HMML had a notified requirement of 45 crawler dozers to be procured. Accumulation of such a large requirement was a result of several failed and aborted procurement initiatives over the past 5 years. The following paragraphs outline the chronological sequence of events in this entire procurement process. The same has been presented in Appendix B, while Appendix A summarizes the key executives of HMML who were involved in the process.
A tender was floated in mid-2018 to procure 19 crawler dozers of a particular capacity, and three bidders participated in the bidding process. This tender had a predetermined splitting ratio of 60:40 between the lowest (L1) and the second-lowest (L2) bidders. Such a splitting ratio is usually disclosed in the tender document to avoid a single supplier failing to meet the required delivery period due to constrained capacity. Sixty per cent of the tendered quantity is placed in the first lot and offered to the L1 bidder. The remaining 40% is offered to the L2 bidder if it agrees to supply at the L1 rate. In the instant case, M/S Earthco, an authorized Indian agent (or dealer) of the China-based principal company M/S Xanting, emerged as the L1 bidder to supply 11 dozers (i.e., 60% of the total order). M/S Bharat Terra Movers, the L2 bidder, was given a counteroffer to supply the remaining eight dozers (i.e., 40% of the order) at L1 rate. However, Bharat Terra Movers declined this offer. HMML officials then approached Xanting to supply the remaining dozers, but Xanting also refused to supply. Consequently, an order could be placed only for 11 dozers out of the total requirement of 19 in that tender.
Again, in mid-2019, the company published another tender for 12 crawler dozers of similar capacity. Responses from bidders could not be received due to technical issues with submitting online responses through the company’s e-procurement portal. Meanwhile, two past suppliers, including Bharat Terra Movers, approached the office of Sunil Vishwanathan, general manager (Equipment Division), as the executive exclusively responsible for procuring all equipment and plant and machinery for the company. The suppliers proposed including engines with electronic fuel management systems for improved efficiency, as both had introduced this type of engine, following a long-standing insistence from their clients, including HMML. It occurred to Vishwanathan that another supplier had already provided such engines fitted in their dozers in the past. With these two suppliers introducing similar engines, there might be bidders with electronic engines in sufficient numbers. Considering this, Sunil Vishwanathan proposed cancelling the current tender and publishing a new one, incorporating necessary changes in the technical specifications and requiring engines only with an electronic fuel management system fitted in the crawler dozers.
A tender was subsequently floated in mid-2020, with changes only to engine specifications, including an electronic fuel management system. This time, backlog quantities from the last 2 years were included, along with the current requirement of seven crawler dozers, bringing the total to 27. On techno-commercial evaluation, the bid by Bharat Terra Movers, which had earlier represented a change in the technical specifications from a conventional engine to one with an electronic fuel management system, was rejected due to the non-submission of documents supporting the proven criteria of the machinery fitted with engines having an electronic fuel management system. The proven criteria in the tender document clearly stipulated that machinery (i.e., crawler dozers) equipped with electronic fuel management system engines must have performed satisfactorily elsewhere for at least 1 year in the past. In response to this rejection, the aggrieved Bharat Terra Movers made a representation to HMML, debating the issue with Sunil Vishwanathan, who declined any concession and remained firm on the earlier decision of his office. Finding no respite, Bharat Terra Movers submitted its representation to the independent external monitors (IEMs) of the company.
In compliance with the Central Vigilance Commission (CVC) guidelines, an Integrity Pact is signed between the purchaser and the bidder to ensure transparency, equity and competitiveness in the procurement process. HMML had appointed a two-member panel of IEMs from the existing panel maintained by CVC to oversee the implementation of the Integrity Pact. Bharat Terra Movers contended before the IEMs that it had submitted credentials of satisfactory performance of semi-universal blades supplied on a sub-assembly basis for two different types of crawler dozers supplied in the past, rather than as an in-built part of any tendered dozer. Still, their bid was accepted then, so their current bid should also be accepted. The company refused to accept this argument, as this was not in line with the definition of proven equipment following the purchase manual of HMML, which states that proven criteria should be out of the same supplied machinery for any similar application (mining, in this case) and not provided on a sub-assembly basis. After hearing the bidder’s representatives and company officials, the panel of IEMs submitted its final report in early 2022, advising that the tender must be cancelled and fresh tenders should be invited to procure crawler dozers. Alongside, the panel pointed out that HMML, like any other progressive PSU, had to keep pace with technological advancements, continually upgrading its technical specifications over time. It was recommended that a meeting or conference be organized with the past, existing and prospective suppliers before issuing a notice inviting tender (NIT) to assess the actual availability of machinery in the market, taking into account amended or upgraded specifications. Pre-NIT meetings are generally held in government departments and PSUs with prospective bidders to discuss the draft NIT and address any difficulties that may arise during its execution. Since such machinery must meet the proven criteria mentioned in the NIT, an attempt should be made to ascertain whether those with modified specifications have market experience. If vendors who meet both technical specifications and proven criteria are limited in number, specifications could still be changed, but only after a careful cost-benefit analysis of the proposal.
Meanwhile, in isolation from the above events, the company published a tender in mid-2021 for the procurement of 13 crawler dozers, as per the approved shopping list for that financial year. After the tender was opened, the CMD decided to shift the dozers mentioned in the shopping list of 2021–2022 to that of 2022–2023. Accordingly, the tender was cancelled. The CMD directed retendering the same as per the modalities suggested by one independent director and suggested that all dozers should be purchased henceforth, along with spares for the entire economic life of the dozers. However, no logic or reason was provided for cancelling the tender. By this time, the crisis of crawler dozers had become acute in all the mining command areas. To avoid further extension of the procurement process due to complaints and counter-complaints from bidders, Sunil Vishwanathan decided to make the requirement for an electronic fuel management system of the engine optional in the technical specification for the next tender, which was floated in mid-2023. This time, the accumulated number of crawler dozers in the published tender rose to 45, including the new requirement of five dozers in 2022–2023. On opening the price bids, it was found that Bharat Terra Movers was the lowest bidder. Interestingly, at this stage, Bharat Terra Movers, in response to the price justification sought by the company, had suo moto brought down the price considerably, which was found reasonable by the Tender Committee.
The recommendation of the Tender Committee was then forwarded to the CMD. As customary, the recommendation for any high-value purchase is made by the CMD only after being scrutinized and vetted by the director (finance). Accordingly, the recommendation of the Tender Committee was forwarded by the CMD to Mr Ramani Pattanaik, director (finance), who, in turn, sent it to Mr Prashant Chaudhari, general manager (finance), for scrutiny before financial vetting. After a day, Vijay Singh got a call from the secretary of Ramani Pattanaik to discuss the procurement of crawler dozers with the director (finance). Upon reaching Pattanaik’s office, Vijay Singh found Prashant Chaudhari already seated there.
This agitated Patnaik, and he said, ‘Well, Mr Singh, come back to my office by next Monday with the status and account of the crawler dozers against which the new dozers are being purchased’.
Vijay Singh tried contacting Sunil Vishwanathan over the phone and discovered he was on leave for his daughter’s marriage in Chennai. Somehow, with the help of Vishwanathan’s deputy, Singh managed to submit the present status, as advised, based on which Ramani Pattanaik suggested a project-wise review of such requirement of crawler dozers at this final stage of procurement. It took another 20 days to collect the information from all mining projects and compile it. Pattanaik, after reviewing the report submitted by Singh, recommended dropping the requirement for one crawler dozer because the mine in question would be closed shortly. At this stage, Prashant Chaudhari, general manager (finance), put another query regarding the suo moto price reduction by the L1 bidder. He remarked that any counteroffer after the price disclosure would be tantamount to negotiation, which is not allowed according to CVC guidelines. The file was again returned to the Engineering and Equipment Division for clarification.
Vijay Singh discussed this query on a call with Sunil Vishwanathan and, as per his advice, submitted the clarification to Prashant Chaudhari, explaining that there was a misinterpretation on the part of Chaudhari as the CVC guideline puts no restriction on the L1 bidder to suo moto bring down their offered price even after the price disclosure. Restrictions are instead placed only on the purchaser to make a counteroffer to the bidder, thereby bringing down the price, which would be equivalent to negotiation. The Finance Department accepted this explanation. Nevertheless, such an infructuous query caused further delay in the procurement process. Finally, after the concerned departments had answered all queries, the case file was presented to the Board of Directors for approval, with the final vetting by Ramani Pattanaik, director (finance), and the recommendation of the CMD. The Board deliberated on Pattanaik’s observations but did not approve the purchase at that time. Instead, the Board constituted a committee of functional directors, asking for a report on the gainful utilization of the crawler dozers, considering the huge accumulated number. The committee submitted its report to the Board with a recommendation to drop two more crawler dozers, based on the remaining life of the concerned projects for which replacement was sought. This took another month and a half. The Board finally approved the procurement of 45 crawler dozers in the last quarter of 2024, a requirement that had been generated year-wise and accumulated since 2017–2018. Besides the approval, the Board issued a directive that further procurement should be avoided until the utilization of crawler dozers reaches its predetermined benchmark. Ironically, Vijay Singh received the official communication of the approval for the procurement of crawler dozers on the same day he got his transfer order, with only 2 weeks to report to the Mayurbhanj mining command area.
The following questions arise from this case study:
How does the case display collective failure in the various phases of the procurement process? Could there be an angle of corruption in the delay in procurement? What are the HR implications of the case?
Footnotes
DECLARATION OF CONFLICTING INTERESTS
The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
FUNDING
The authors received no financial support for the research, authorship and/or publication of this article.
Note
E-mail:
E-mail: