Case Studies - Stores Tenders

4 CASE STUDIES ON CARTEL FORMATION BY RDSO APPROVED FIRMS
As safety is becoming a watch word for running of the trains, more and more emphasis is being laid to source a large number of stock items from approved sources of RDSO/CLW/DLW and others. Since these sources are very few and the list is not expanding fast. Monopolistic tendencies are setting in amongst these approved firms. It has been noticed that these firms are charging high rates in close co-ordination in quoting rates resulting in cartel formation.

There are mainly two reasons for this malaise namely;
1) Multi Sourcing.
2) Tendencies for accumulation of stores as natural habit.
Multi Sourcing is resorted to only when it is crystal clear that one firm is not having adequate capacity to supply the required stores hence multi sourcing becomes a must. Multi sourcing was/is the reason for non-competition and higher price as the nucleus of the RDSO firms, form the cartel to ensure that all of them swim together and prosper as the tendered quantity is distributed amongst them in the ratio of say 40:30:30 or 50:25:25 or any other combination.

The normal tendency is to have more than adequate balance in stock and adequate numbers in pipeline and is ensured by multi sourcing without reference to Monthly Usage Factor (MUF) and ignoring cost thereof is the another reason for higher rates.

It was noticed by the Finance Member that in the following cases, the lowest firm(s) had the required capacity to supply the material and therefore there was no reason to go in for multi-sourcing. It was hence insisted that the first valid offer can be considered for awarding the supply contract for entire tendered quantity.

CASE NO.1 (Saving achieved Rs70,59,607/-)
Special Limited tender was called for COMPLETE SET OF AIR BRAKE FOR PASSENGER STOCK FROM RDSO APPROVED firms against Tender No.11 99 1726. There are 8 approved firms namely
1) M/s Greysham & Co., Delhi - Part I.
2) M/s. Knorr-Bremse India Pvt. Ltd. - Part II
3) M/s. SAB-WABCO India Ltd. - Part I.
4) M/s. S.D. Technical Pvt.Ltd.
5) M/s. Bharat Brakes & Valves Ltd., Calcutta - Part II.
6) M/s. Escorts India Ltd. - Part II.
7) M/s. Greysham International Pvt. Ltd. - Part II.
8) M/s. Stone India Ltd., Calcutta - Part II.

7 firms participated in the tender under question. First lowest offer was overlooked in view of poor performance of its product and was ignored. 6 firms quoted one uniform rate of Rs.37,000/- per piece plus ED @ 16% plus Sales-tax @4% at an all inclusive rate of Rs.44,636.80. each.
The last accepted rate for this item was Rs.32,500/-per piece plus ED @16% plus Sales-tax @4% at an all inclusive rate of Rs.39,884/-. Each.
Since the rate quoted in the tender was very high in comparison with the last accepted rate and all the firms had quoted one uniform rate, all the firms were called for negotiation.
In order to break this cartel it was decided by the Tender Committee that as against the practice in vogue, to distribute the quantity among the best suppliers, order for the entire quantity was placed only on one firm namely M/s. Knorr-Bremse India Pvt.Ltd., Faridabad .
However the real impact of awarding the entire quantity to only one firm was seen in the next tender. It was seen that in the next tender cartel was broken effectively. The rates quoted by these firms were not only lower and different from each other but stiff competition had resulted in. The lowest valid offer was Rs.24,480/- each plus ED@16% plus Sales-tax @ 4% at an all inclusive rate of Rs.29532.67 each.
1) Thus the Tender Committee was not only able to curb the above increasing prices quoted by RDSO approved firms but also had been able to generate competition amongst them and drastic reduction in the basic price. The overall savings achieved for Central Railway for this item for the year 2000-01 vis--vis the last accepted rate comes to Rs.70,59,607/-.

Note : Suggestions from the Executive to distribute quantity under procurement from all RDSO approved firms should not always be accepted in routine : it was found that years of this practice had its own major financial implications as detailed above.

CASE NO.2 - REDUCTION OF PRICES BY 37%
Special Limited tender for procurement of INDEXABLE INSERTS ISO LNU x191940 grade m15-m20 was called from RDSO approved sources only. The procurement of this item for Central Railway ranges from 13,000 to 15,000 nos. in a year.
The approved firms are as under;
1) M/s.Indicarb Ltd., Hosur.
2) M/s. Widia (India) Ltd., Bangalore.
3) M/s. Sandvik Asia Ltd., Pune.
4) M/s. Sidtizil Ind. Calcutta.
5) M/s. Drillco Seco Ltd., Pune.

It was seen that all these RDSO firms were quoting a basic price of Rs.300/- per piece plus 16% E.D. and 4% Sales-tax at an all inclusive rate of Rs.361.92 each.

As the multi sourcing was the order of the day, the entire quantity used to be re-distributed in the ratio of 33% each to three best suppliers for this item.

As Tender Committee had successfully experimented in the above stated case study and similar other cases, Tender Committee decided to call for the performance of the products supplied by these firms to various sheds of Central Railway. On scrutiny of the reports, it was seen that the performance of the product of M/s. Widia (India) Ltd., Bangalore was far superior to those of the other two firms. Tender Committee therefore recommended to place order on M/s. Widia (India) Ltd. @ Rs.300/- per piece plus E.D. plus Sales-tax. However in view of a number of anonymous complaints received, accepting authority directed the Tender Committee to review its recommendations. Tender Committee reviewed its recommendation and considered that other firms' offers can be considered , provided they reduce their rate commensurate to the their performance as measured by the number of less cuts performed vis--vis inserts of M/s.Widia (India) Ltd. Accordingly, Tender Committee recommended for negotiation.

During negotiation prices tumbled down from Rs.300/- Basic Price to Rs.190/- Basic Price per piece. The overall comparison is as under :
Basic price - Rs300 per piece +ED@16% +ST@4% =361.92
Negotiated Price - Rs.190/-E.D 16% & Sales-tax 4%Total Rs.229.21 each.
The difference is 361.92 - 229.21 = Rs.132.71 per piece.
37% reduction in prices has been achieved and the cartel of RDSO approved firms was effectively broken. Ever increasing price trend has not only been stopped but reversed and competition has been effectively introduced.

CASE NO.3 - SAVING ACHIEVED Rs. 1,31,0997

Special Limited Tender for PROCUREMENT OF 203 MM BOGIE MOUNTED AIR BRAKE CYLINDER (WITH SLACK ADJUSTER) TO RDSO SK NO.81057 ALT.5 FOR 1843 NOS. AGAINST TENDER NO. 11 00 3546 was called restricting it to RDSO approved firms. The names of the firms are :-
1) M/s. Escorts Ltd., Faridabad.
2) M/s. Stone India Ltd., Calcutta.
3) M/s. S.D. Technical Services Pvt.Ltd., New Delhi.
4) M/s. Greysham & Co., Delhi.
5) M/s. Recon Engineering Co.(P) Ltd., Calcutta.

Tender Committee while reviewing the performance and credentials of these firms noticed an interesting and eye opening performance submitted by M/s. A.J.Tech. EquipmentsCalcutta . M/s. A.J. Tech. Equipments, HWH was placed on approved list Part II recently. Tender Committee noticed that for years on M/s. A.J. Tech. Equipments, HWH has been supplying these air brakes cylinder to other RDSO approved firms in Part I who in turn were supplying these cylinders to Central Railway and others.

The rate for this item was hovering around Rs.4500/- in the last two years.
In the tender under consideration M/s. A.J. Tech. Equipments, HWH quoted a rate of Rs.3792.50. All other Part I firms quoted uniform rate of Rs.4500 plus 16% ED & Sales-tax 4% at an all inclusive rate of Rs.5428.80 each. Even though M/s.A.J. Tech. Equipments, HWH was in Part II approved firm of RDSO, Tender Committee decided to place the order of the entire quantity of 1843 Nos. on M/s.A.J. Tech. Equipments. M/s. A.J. Tech. Equipments, HWH. has completed the order successfully.

Part II approved firm if it had the required capacity to supply the material, it would be advisable to leave the decision to Tender Committee to decide as to how much quantity can be offered to a Part II approved firm instead of restricting the quantity to 15% of the entire quantity as per the extant instructions of the Railway Board rather the instruction could be not less than 15%. For years , this firm had been supplying this item to other RDSO approved firms and was not finding place in approved list of RDSO.

This case study reveals how Board's instructions for placing orders on RDSO approved firms can be interpreted in the financial interest of the Railway without necessarily following the orders literally.

CASE NO.4 - PROCUREMENT OF METAL GAPLESS LIGHTENINING ARRESTER FOR 25 LOCOMOTIVES AS PER RDSO'S SPECN. NO. SPEC/E-1/2/05 OF FEB'87.

Advertised tender were floated for the procurement of 185 nos. of Metal Gapless Lightning Arrester AS PER RDSO'S SPECN. NO. SPEC/E-1/2/05 OF FEB'87 against Tender No. 17.99.8067 . The indent for procurement of Metal Gapless Lightning Arrester was vetted by divisions costing approximately Rs.59.36 Lakhs. These indents were apparently vetted on a strength of Railway Board's letter issued in the year 1985 stating that Metal Gapless Lightning Arrester were required to be installed in the existing locos being a safety item. Last purchase for the same item was done somewhere in the year 1986-87 by CLW and 52 nos. were made available to Central Railway for installation. Since then and upto 1999 this item was not procured by Central Railway. It was also seen that none of the locos supplied to Central Railway by CLW since the issuance of the above stated letter in 1985 had been provided with Metal Gapless Lightning Arrester . Obviously there was no justification to vet this item to be procured as non-stock item that too on safety account. Accordingly, the need for the procurement of this particular item was questioned at the tender committee stage. Since the Technical Member was firm in procuring this material, Finance Member had no option but to give a dissent note and recommended to discharge the tender in view of inadequate justification. Accepting authority in turn referred the tender committeee recommendations to the PHOD for his review and remarks as to whether the above item should or should not be procured. On the basis of the remarks, accepting authority discharged this tender.

CASE STUDY - Irregular classification of Tender

The computerised ticketing on Indian Railways is being done through the PRS terminals for reserved tickets and ARTS / CARS machines for unreserved tickets. M/s. CMC Ltd. being the hardware suppliers on a monopoly basis were also providing the maintenance free back up batteries for the UPS under works contract. Some Zonal Railways have in fact been taking these batteries even on PAC from them.
In a similar works contract tender for supply, installation, testing and commissioning of UPS batteries (560 Nos. @ 10 per UPS) for an estimated cost of Rs.39.20 lakhs, the Accounts Member objected to batteries being taken under works contract and persisted with the objections inspite of Technical Member confirming that this is a standard practice. Accounts Member pointed out that the batteries of similar / same specification were being supplied under a DGS & D Rate contract and insisted upon discharging the works tender.
The tenders were discharged leading to a saving of Rs.12.71 lakhs as the rate contract price was only Rs.2080/- battery as compared the lowest offer from M/s. CMC Ltd. At Rs.4350/ battery.
It is necessary that officers dealing in works contracts are made aware about the items available under DGS&D rate contracts along with the prices and specifications so that the most judicious financial decision can be taken.





Click here to go back

1