NEW DELHI: In a bid to make public procurements more transparent and curb disputes about contracts, the government has decided to include a clause in all bid documents by public departments explicitly barring any bidder who quotes a zero fee.

With the government usually procuring goods and services worth Rs 14 lakh crore annually, the finance ministry has decided to ensure that confusion about zero bids doesn’t hamper the government’s ability to award contracts expeditiously.

Since the current procurement rules followed by the government purely focus on awarding contracts to the bidder quoting the lowest price, quite a few bidders end up quoting the bare minimum costs or even zero fees for their services leading to confusion among departments about whether such a bid is valid. The confusion arises primarily on account of two seemingly contradictory rules.

While the General Financial rules of 2005 state that a contract should be awarded to the ‘lowest evaluated bidder’, a separate manual on policies and procedures for purchase of goods issued by the expenditure department in the finance ministry states that “inadequacy of consideration is not a ground for avoiding the contract.”

Often, each department interprets the rules regarding such bids differently, leading to uncertainty and delays in the procurement process. For instance, in 2009, the asset management arms of HDFC and Birla Sun Life were disqualified from a contract to manage thousands of crores of retirement savings for the Employees’ Provident Fund Organisation as they had both quoted zero fees to do the job.

The PF office rejected the two firms’ bids arguing that a contract can’t be valid without the payment of any consideration. In another recent case, when a government department invited bids to hire manpower through a contractor, the lowest bidder quoted the ‘minimum wages’ payable to the contract workers with no fees.

The law ministry, which was consulted on the bid, also held that a pact without consideration is null and void and so the bid may be rejected. To settle the issue, the finance ministry has asked all ministries and departments to include a clause in the bid document stating “if a firm quotes nil charges or consideration, the bid shall be treated as unresponsive and will not be considered.”