Comparison of tender documents

Comparative statement of important points in the two tender documents for the VH contract dated 16-9-2015 and 15-3-2017*

                                                                                                                                                                                             *Also of relevance Minutes of pre-bid meeting, 2017.

Commentary:

Part A: Minimum wages and the structure of contracts:

The Institute started giving out services for contract in the early 1990s and very soon it was apparent that there was rampant violation of minimum wage rules. The community (including faculty members, students, staff and workers) kept raising the issue with the administration seeking the enforcement of law in contractual work. And in December 2000, a minimum wage monitoring committee (MWMC) was formed by the then Director. MWMC was supposed to ensure payment of minimum wages and statutory benefits to all workers, address worker complaints and recommend policy changes. Given the vast scope of work it would have been impossible to make an actual difference in the practices (i.e. not merely on paper) if only the official members of the committee were to handle all of it. The reason IIT Kanpur could enforce minimum wages in the campus (to a significant extent) was because of the consistent efforts of a large group of volunteers of the community – which helped not only in monitoring the process but also in educating the community of the need for such an effort. Over time MWMC discovered the following:

a) Some cleaning contracts had been awarded for amounts lower than the total minimum wage component for the contract. Thus it was impossible to execute the contract as per law unless the contractor turned benefactor and put in his own money to complete the contract.

b) Government of India revises the central minimum wage rates twice a year in April and October. Contracts with a substantial labour component run the risk of becoming unviable if the increase in wage rates overtakes the monthly bid amount. For example the April 2017 revision increased the minimum wage rates by over 30% (perhaps due to the seventh pay commission).

c) Contracts on a fixed per person or per piece/item rates (called fixed price contracts)  run the risk of becoming unviable when prices change. This is particularly true when food and beverages are involved  – for example prices of tomatoes changed from Rs.20/kg to Rs.100/kg in the span of a few days recently. This was first noticed in the hall mess contracts. To remain profitable the contractors adopted two strategies i) pay less than minimum wages to workers or reduce number of workers and make existing workers work for longer hours ii) Compromise on the quality of the raw materials or brands of consumable items or other goods.

The MWMC had over time recommended the following policy changes in the way tenders were framed:

a) All contracts with a labour component must assess the cost of the labour component as per norms (or past experience) and summarily reject bids that were lower than this value (e.g. item i) in the 2015 column in the table).

b) IITK should pay the contractors as per the revised minimum wage rates whenever such rates are announced and from the date they become applicable.

c) Services that had both consumable items or other goods and labour components (e.g. mess contracts, cleaning contracts, VH contract etc.) should be separated into a labour component and consumable or goods component where the consumable or goods component is charged at actuals and the labour component is paid at minimum wage (or higher where applicable) rates along with the EPF, ESI and other statutory payments that apply. This insulates the contractor from price fluctuations which are not in his/her control.

After much foot dragging IITK had gradually shifted to a model where a), b) and c) were made part of most contracts. This was most visible in the hall mess contracts. Even the 2015 VH document satisfies a) and b) though not c). In the 2017 contract all three, namely a), b) and c) are absent. There is, therefore, every possibility that the workers will be the party that is most negatively impacted. Historically, we have seen that the worker is the easiest to squeeze and contractors have always taken that option when fixed price contracts become unviable or even when their profit margins decline due to changes in prices and increased wage rates.

The 2017 document is a throw back to the past and is either ignorant of past history or is wilfully ignoring the historical experience at IITK. IITK's ability to monitor evasion of minimum wage payment is anaemic at best. With over 3000 workers on campus it is clear that the institute just does not have the capability to properly monitor minimum wage payments. Contractors have come up with new ways of avoiding paying minimum wages. There are multiple reports of two tactics that contractors have adopted: a) payment of a lump sum amount to the contractor before a worker is admitted on the rolls – amounts mentioned have been in the range of Rs.20000 to Rs.60000 and b) workers being forced to pay back, in cash, some part of the wage he/she is paid every month.  Such reports are, unfortunately, very hard to establish since workers do not come forward and complain or formally admit that he/she is the victim of such malpractices. And yet, given the past experience, these kinds of serious lapses can be avoided to a large extent if there is an appropriate procedure in place and a vigilant community to ensure adherence to the laid out procedures. 

Part B: Infirmities in the evaluation procedure

It is obvious that an evaluation scheme that is a composite of technical factors and  the financial bid and where the technical factors predominate has the potential to inflict much higher actual costs on the institute and is easily manipulable especially when technical criteria are vague and/or biased and/or there is no announced scheme for giving marks.

Take a simple example using the 2017 document. Assume there are only two qualified bidders A and B whose financial bid will be opened. Assume A is given 50% for technical and B is given 90% for technical. Let the financial bid of A be 100 and that of B be 200 (i.e. 100% higher) then as per the scoring formula:

A's score: 30+40=70

B's score: 54+40*(100/200)=74

B wins the contract at a price that is twice the price of A. In the given example IITK will be paying at rates double the lowest rate. While this may look as an extreme example, the purpose is to show that the institute can end up paying much more than it has to. It must also be noted that the twenty points on which the bids are to be evaluated are anything but objective and since no scoring scheme is specified can be quite subjective and arbitrary. Also, it is easy to create a huge difference by giving 1 mark less on a number of items where each item is worth only 3 marks. If we look at the twenty items for technical evaluation one observes the following: a) several items clearly favour bigger contractors

b) some items are hard to score e.g. 8. brands of materials proposed, 10. Capabilities of bidder to guide in modernizing VH and kitchen 11. Manpower proposed 15. Report and reviewing system proposed 17. Relevant quality additive enhancements in food/beverages over those proposed 20. Commitment of top management.

c) when reporting norms and details of each meal and brands of items that can be used are laid down points like 15 and 17 do not make sense

d) The maximum score for each item is 3. So, an item like 11 which asks for details of manpower has the same weight as item 2 (extent of national presence) or item 8 (brands of proposed goods).

Much will be clear if we can get access to the actual details of the technical and financial bids, how the scoring was done and the actual scores obtained by the bidders. This will reveal whether or not the institute is paying more, if yes how much and for what hpothetical gains.

Further infirmities in the evaluation scheme are:

i) How relevant are the technical criteria for which 60% weight is given to the actual day to day operations of the VH. Most of the criteria are peripheral at best and since the institute's monitoring capacity is very limited it is unlikely that the institute will be able to effectively monitor what the contractor has promised in the technical bid assuming the technical bid is treated as a document that the contractor must follow in practice. However, this has not been stated explicitly in the tender document and the contractor is only obliged to follow the norms laid down explicitly in the contract. So, the marks on the technical component is a purely hypothetical score that has very little direct effect on the actual work that needs to be done. On the other hand the financial difference, if any, is hard money that the institute will end up paying.

ii) Several items clearly favour bigger contractors (certainly items 1 to 5 and perhaps a few more). When turnover and other criteria have already been laid down for qualification technical factors that privilege the larger contractors is unfair. Is there hard evidence that bigger contractors will necessarily do a better job of running the VH? The level of service at the 3 star level has been specified why then have technical criteria that favour larger contractors.

iii)  Man power is likely to be a substantial component of the contract since house keeping and cleaning of facilities seem to dominate the work that needs to be done. Has IITK worked out the minimum number of workers needed under different conditions based on the nature and type of automation/machines proposed by the contractor? There is no mention of any thing in the tender document. So there appears to be no reserve or base price below which the contract is considered unviable. This is almost an open invitation to the contractor to exploit the workmen employed.

For all the above reasons the current contractual arrangement is deeply flawed and the whole tendering process should be redone in a fair and rational manner.

Also, it is open to the institute to insist that existing workers who are doing their work properly and who have no black marks against them be retained. This can be made part of the tender. The institute should not wish away the human cost of throwing out people who have been working for so long. The legal thing to do is not necessarily the moral or ethical thing to do.