The Comptroller and Auditor General (CAG) of India has detected “certain inadequacies in the systems and procedures of purchase, vendor development and tendering process” of Bharat Electronics Ltd (BEL), a Navartna public sector undertaking under the administrative umbrella of the Defence Ministry.
In a report tabled recently in Parliament, the performance audit of a sample of 1,272 purchase orders placed between April 2007 and March 2010, aggregating Rs 4,954.83 crore and constituting about 52 per cent of the total value of purchases of Rs 9,490.95 crore, was carried out to assess the efficiency, economy and effectiveness of the procurement system of BEL.
Vendor base
Stating that the company was operating on a thin vendor base, the audit points out that for almost a third of the standard items BEL had only one vendor, while for another one-third of the items it had only two vendors.
It said the company could add only 168 vendors to its directory during the last three years, which accounted for only one per cent of the total vendors of the company. “In the absence of an adequate vendor base for procuring a large number of items, the company's ability to obtain competitive rates was impaired”, the CAG cryptically noted.
Despite this, BEL's purchase procedure was liberalised in 2009 to permit procurement of items through single tender even where more than one vendor for such item was available.
As a result, the report states that during the last three years almost 90 per cent of the total procurement of BEL was made through single tenders, and the balance 10 per cent through limited tenders. The procurement through open tenders was ‘negligible'.
Moreover, it said the vendor base of BEL was unit-specific and was not being shared among units while inviting quotations, depriving the company from reaping the benefits of competitive pricing, particularly when the vendor base of the company was wafer thin.
As the vendor base impacts the competitiveness of the procurement prices and provides leverage in selecting the suppliers, BEL needs to urgently address this issue of widening the vendor base to gain economy and quality in procurement, it said.
Not monitoring prices
Pointing out that the company and its units were not monitoring the price trends of material and components albeit specific provision in its purchase procedure, the report drew attention to the lacuna that in 38 per cent of cases scanned, the units of BEL failed to adhere to the specified time limit for placement of purchase orders. Ghaziabad and Chennai units could convert 43 and 26 per cent of the purchase requisitions, respectively, within the prescribed time.
Even as BEL had opened two overseas outfits at New York and Singapore for importing material/components directly and had worked out a saving of 14 per cent on purchases made through these offices, audit found that meagre quantities (3.4-5.91 per cent of value of imports) were imported through these overseas offices.
Slow indigenisation
Deploring the slow pace of indigenisation, which was putatively believed to be the major driver of cost reduction, the CAG said that this is borne out by the fact that the value of purchase orders placed on foreign vendors rose from 48 per cent in 2007-08 to 68 per cent in 2009-10.
The CAG has suggested that BEL make concerted bids to expand its vendor base and share the vendor directory among its units to enable competitive rates, besides revisiting its procedures for procurement to ensure that quotes are invited from more than one available source to derive the benefits of competitive rates.
The audit also urged the company to beef up the extant Enterprise Resource Planning system to ensure comprehensive database to exercise effective control over procurement of material only from authorised sources and advances to suppliers.
The report states that the Ministry has accepted all the recommendations and, as a sequel to the extensive study by audit, the company has been advised to ferret out solutions for the problems.