Sandeep Mishra v/s NHAI: A Case of CCI's Prejudice
[Yagya is a student at Institute of Law, Nirma University.]
Public procurement is a principal economic activity of the government which can be defined as “a process of purchasing goods or services by the public sector”. The aim of public procurement is to promote efficiency by way of selecting suppliers with the lowest price or obtaining the best value for public money. In India, government procurement constitutes about 30% of the GDP. The existence of competition is essential for a public procurement process to realize its purpose, which is to determine the most efficient price offered in a market. Be that as it may, in the instance of corrupt practices like collusion among the competitors (or bidders) in a public procurement setting, the objective of the whole process may stand diluted.
Competition in public procurement is susceptible to collusion among the bidders, and also to the framing of inefficient policies by a statutory body. The Competition Commission of India (CCI / Commission) has been proactive in identifying collusion among bidders in a public procurement setting. The Commission has usually adopted a stern approach while dealing with cartel participants involved in public procurement and has imposed heavy fines on them time and again. However, the CCI’s approach has at times also appeared to be generous while dealing with a situation where the statutory body has failed to frame an efficient procurement mechanism and has facilitated harm to competition. The same can also be witnessed in the recent order passed by the CCI under Section 26(2) of the Competition Act 2002 (Act), in the case of In Re: Sandeep Mishra v. National Highways Authority of India (Sandeep Mishra Case). This article will attempt to highlight the concerns arising out of the said order, comparing it against the Commission’s enforcement and advocacy efforts in the past along with some international perspectives on the same.
National Highways Authority of India (NHAI) is a department of the Government of India under the Ministry of Road Transport and Highways (MoRTH). The Informant claimed that the sub-criteria for relevant experience being prescribed by NHAI in its request for proposal (RFP) for engaging consultants is different from the criteria followed by the Ministry of Road Transport and Highways / National Highways and Infrastructure Development Corporation Limited. Based on the above, the Informant contended that NHAI is following monopolistic and restrictive trade practices resulting in an abuse of its dominant position in the market.
NHAI, however, put forth in its response that the aforementioned information pertains to RFP for engagement of Authority Engineer and it follows the standard RFP document issued by MoRTH for the same. Further, depending upon the the nature of work under consideration, project-specific changes may also be incorporated in the RFP, which is also in accordance with MoRTH standard RFP. NHAI further submitted that there is no deviation in experience requirement between the RFP adopted by NHAI and the standard RFP document issued by MoRTH.
The Commission first assessed whether the NHAI would fall under the definition of the term ‘enterprise’ which is defined under Section 2(h) of the Act. On a cursory look at the said definition, it can be inferred that the CCI looks into any kind of activity performed by the government at any level, central or state, and excludes only the sovereign functions performed by the government, which includes any dealings in atomic energy, currency, defence, and space. However, the NHAI is engaged in economic activities like development, maintenance, and management of national highways, collecting fees on national highways, providing consultancy and construction services in India and abroad etc. NHAI is not performing any sovereign functions and, therefore, the CCI concluded it to be an enterprise for the purposes of the Act.
CCI’s Approach Towards Inefficient Policies in Public Procurement
The Commission has often appeared reluctant to delve into the depth of the matter arising out of the inefficient policies in public procurement. The five-page order in the case at hand evidences the same. In the instant case, the CCI does not provide sufficient reasons to deny dominance of NHAI in “the market for procurement of highway engineering consultancy services in the territory of India” even after considering it as a key player in the market.
Further, CCI acknowledged that the matter pertains to the prescription of specific conditions in a tender for engaging highway engineering consultancy services by the NHAI. The CCI holds that it is the prerogative of the procurer to decide the following in the tender document as per its own requirements: tender conditions, technical specifications, conditions, clauses, etc. However, the CCI appears to be oblivious of the fact that competition distortions can be caused by government policies and laws. Competition distortion in the instant case could result from the mandatory requirement of a particular technical specification rather than a generic specification in procurement rules. Moreover, technical specifications which are more stringent than necessary render several potential applicants ineligible for the tender process, as happened in the instant case. The said understanding has been endorsed by the CCI itself in its advocacy booklet on public procurement.
It is not the first time when the CCI has dealt with such a matter peripherally. In the case of In re: Suntec Energy Systems v. National Dairy Development Board and Another, a tender was floated by a statutory body and the offer document provided a ‘List of Preferred make of bought out items’ in Section V of Technical Specification in the tender document. Under the product name ‘Burner’, only one manufacturer was specified even when there were other manufacturers available with the same technical specifications. The Commission, overlooking this seemingly unfair condition in the tender, went on to hold that “a procurer, as a consumer, can stipulate certain technical specifications / conditions / clauses in the tender document as per its requirements.” The CCI, advocating for the rights of party floating the tender, observed that it has the right to decide on the appropriate eligibility conditions based on its requirements. While forming such opinion, the Commission encourages the drafting of inefficient procurement rules and goes against its own observation made as a part of its advocacy efforts.
The Organisation for Economic Co-operation and Development’s (OECD) Recommendation on Fighting Bid Rigging in Public Procurement prompts its member states to “design the tender process to maximise the potential participation of genuinely competing bidders”. OECD also recommends that unnecessary restrictions be avoided to reduce the number of qualified bidders. Further, minimum requirements should be proportional to the size and content of the procurement contract, and those minimum requirements should not be specified that may create an obstacle to participation, such as controls on the size, composition, or nature of the firms that may submit a bid.
The legislature and the regulators of other mature jurisdictions have acknowledged the detrimental effect of narrowing down competition through an inefficient procurement mechanism. It can be witnessed from Article 18 of the EU public procurement directives, which states that the design of the procurement should intend to exclude artificial narrowing of competition. This provision further explains that artificial narrowing of competition can be in a situation where the design of the procurement is made to unduly favour or disadvantage certain economic operators. A similar view was also reflected in the case of Bundesdruckerei GmbH v. Stadt Dortmund, wherein the national legislation required tenderers and their subcontractors to undertake to pay a fixed minimum wage to staff performing the services relating to the public contract. The court observed that such a fixed minimum wage “prevents subcontractors established in that Member State from deriving a competitive advantage from the differences between the respective rates of pay.”
Similarly, the antitrust guidelines issued by the FTC and the U.S. DoJ for collaboration among competitors highlights the need for a closer look at the nature of the relevant agreement, to assess whether it may cause anti-competitive harm or not. The Competition in Contracting Act, which is enacted to enhance the competition in procurement, makes it clear that restrictive provisions or conditions should be included only to the extent necessary to satisfy the needs of the agency or as authorized by law.
The Sandeep Mishra Case, where the CCI has hesitated to probe into the inefficient policy formulated by the government body, might end up setting a bad precedent. The CCI order also shows a lack of solicitous examination of the information by the Commission. The CCI does not find it necessary to examine in detail the market position of NHAI even after conceding to the fact that it is a key player in the relevant market. The incautious approach adopted by the CCI in the Sandeep Mishra Case presents an inconsistent jurisprudence with regards to the treatment of public procurement processes in the country. The responsibilities on CCI’s shoulders will be umpteen in the near future while dealing with public procurement as the government is substantially relying on public-private partnerships to bail out the economy. It will be interesting to see if CCI changes its incautious approach in light of such an increased responsibility.