Tuesday, December 8, 2015

Governments use a variety of public procurement methods. Few of them include LCM (least cost method), QCBS (quality and cost-based selection), viability gap, reverse e-auctions, and hybrid annuity. Analyse each of them and examine how different is Swiss Challenge method compared to these methods. (300 Words)

A variety of public procurement methods used by Governments with their merits and shortcomings are as below:
(i) Least Cost Method (LCM): One of the most preferred method where L1 bidder, one who proposes the least cost is chosen irrespective of other considerations, though authenticity of bidder is verified before including him in the process.
The method fails to appreciate quality and technical details and therefore augurs well for routine supply of standard specifications.

(ii) Quality and Cost based Selection (QCBS): An improvement over LCM as bids are invited in two sets, technical bid and financial bid; latter is opened only when former meets the specifications. Thus bids are filtered through technical qualification and then L1 is selected.
The method is complicated than LCM and as such requires expertise or third-party elevator. Still, it fails to appreciate complex technicalities of specific nature like of engineering, construction or IT bids.

(iii) Viability Gap (VG): This type of procurement is suitable for infrastructure projects or high investment projects in which return accrue over a period of time, most often not attracting private players. In such cases, governments or public agencies pitch in some fund to make the projects viable and attractive. The least VG bid is accepted.
There are certain issues like market uncertainties, bidders' capability, terms of contract and other externalities, which sometimes upset the project. It requires sophisticated framing of guidelines and detailed deliberation beforehand.

(iv) Reverse E-Auctions: This is just reverse of LCM where bidders proposes to charge some cost for their produce, generally for public consumption. The one who asks least cost on given terms is awarded the tender.
In this method, external factors like commodity or currency shock, supply disruptions, labour issues etc. need to be taken into account otherwise projects may become unviable and bidder may fail to honour their bid.

(v) Hybrid Annuity Method (HAM): In this method, risk and return is fairly shared by public and private agency, both. This is a preferred method over Engineering, Procurement and Construction method of awarding large infrastructure projects as in this public body has limited control. By making some contribution in HAM the public body finds it more amenable. At the same time, private player finds it easier to get regulatory clearances and other procedural help by assistance of public agency.

Swiss Challenge Method (SCM), something derived from neutrality of Switzerland during the two World Wars, signifies a bidding process in which public agency remains neutral. Any person with credentials can submit his proposal and the proposal is made public. Someone else can propose improvement over it. If the first person fails to meet technical or financial improvements thus suggested, the project would be awarded to second person with appropriate remuneration to first party for his ideas or intellectual property rights.

SCM has been in news as after in use by some states, Indian Railways has decided to award contract for development of 400 stations by this method. Though, the Supreme Court has approved the method, the Central Vigilance Commission frowns over it due to possibility of manipulation and rigging.
The SCM introduces speed, competition and innovation apart from technology, expertise and finance brought in by private players in existing PPP model. However, strong legal and regulatory framework is required for transparency and accountability in SCM, especially in direct negotiation of projects as allowed under State Act of Gujrat.

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