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e-Procurement Project
Information Technology and Communications Department, Govt of Andhra Pradesh
India

The Problem

The inadequacies in the traditional systems of procurement and its associated delays, increased costs were adversely affecting the delivery of development projects, goods and services to the citizens. A Cabinet Committee constituted by the State govt of Andhra Pradesh (Y2000) had noticed that E-procurement implementation was growing in the developed countries. The Cabinet committee recommended eProcurement for govt agencies in the state.

Andhra Pradesh government is a pioneer in India to implement electronic procurement.. Eprocurement is included as an important part of egovernance initiatives The state govt has set up a statewide eProcurement portal that can be utilised by all GoAP departments, Co-operative sectors, Public sectors units and urban local bodies along with their vendors. The project is implemented for the State Government by a private vendor on Application Service Provider model. In this model, the service provider invested in the hardware, software and customization of the project and it recovers the investment through service charges paid by the participating bidders for transactions carried out on the portal.
The prime objectives of eprocurement are demand aggregation, transparency, accountability, fiscal savings, standardization of procurement processes across government entities to bring in administrative efficiency. The eprocurement system offers a superior level of security with Secure Socket Layer( SSL) encryption, strong authentication with digital certificates and speed to conduct real time bidding from remote locations over the Internet. The initiative is implemented in phases, the pilot phase was launched in January 2003 in 5 selected departments for procurement costing above Rs 10 Millions to test proof the concept. After successful testing of the pilot, the state govt has rolled out the initiative to all the procurements in the state in July 2004 for values exceeding Rs I Million. Currently eprocurement is implemented successfully in all major procurement agencies i.e.,12 govt departments, 19 PSUs, 69 Urban Local Bodies spread across length and breadth of the state, the portal has processed 24000 transactions worth Rs 408,000 Millions i.e equivalent to $ US 9 Billions.
Eprocurement has secured demonstrable and significant benefits by way of cost and time savings to the government, bring transparency in public procurements and empowered the small & medium suppliers. The path breaking initiative has proved that transparency, fairness and equal opportunity to private entrepreneurs who bid for govt contracts, sell products or expertise to govt agencies will not only result in healthy competition, significant contribution to the economy but also makes significant social impact as the citizens are now assured that their money is properly spent .
This innovative initiative has won ‘Golden Icon’ award for exemplary e- governance initiative from Government of India for the year 2003 and several other awards. This project has been declared as a best practice by Govt of India and is being replicated in many other states.
Project Manager eprocurement

Solution and Key Benefits

 What is the initiative about? (the solution)
The eProcurement initiative has transformed the procurement process in government departments. The automated processes and work flows have improved internal efficiency within the departments; shortened tender cycle times, eliminated subjectivity in the evaluation of tenders with system based auto bid evaluations, saved costs on account of competition generated due to remote bidding and have reduced corruption.

o Automatic work flows, accountability of the staff has resulted in reduction in tender cycle time: In the pre e-Procurement era, the departments used to take 90-135 days for finalization of high value tenders. The tender cycle time has gradually come down to an average of 42 days over a period of one year and further reduced to 35 days at the end of the second year. There is greater accountability since the electronic records/ documents can be retrieved at any given time and all the activities of a system user are logged in the system.

o Reduction in opportunities for corrupt practices: the e-Procurement system allows a supplier to view the Notice Inviting Tenders, download bid documents and Bill of quantities, free of cost on ‘any where’ and ‘any time’ basis from the Internet. This has empowered the supplier as he is no more dependent on the government workers for issue of RFPs, clarifications on the bids, bid submission, information on tender evaluation status, etc. The entire e-Procurement process has been designed to eliminate the human interface i.e., supplier and department interaction during pre bid and post bid processes has been minimized. The automatic tender evaluation functionality has reduced subjectivity in tender evaluation..

Transparency made the govt departments to be more objective: The NIT, Corrigendum, bid documents, Bill of Quantities are available to a citizen for free downloads. A supplier participating in a tender knows the list of other participating suppliers, the documents furnished by his competitors, price quotations and the evaluation result, as soon as a stage is completed by the departments in the system. The MIS feature in the system reveals data on government procurements instantaneously to the bureaucrats and ministers.
o Cost Savings: One way to estimate cost savings is to compare the difference in Tendered Contract Value over the Estimated Contract value for service contracts awarded before and after the implementation of the e-Procurement system. The project encourages bidders to participate in government tenders. Supplier participation has increased from an average of 3 per tender in conventional mode to 4.5 in e-Procurement mode. The cartels are eliminated and even small and medium suppliers are now able to bid, as the platform facilitates any-where any-time bidding. The departments have reaped significant cost savings of an average reduction of 16% in cost for the procurement transactions done through the exchange during the year 2003-04 and 10-12% in 2004-05 due to a competitive environment. There is also a substantial reduction in the advertisement costs in the press media, as e-Procurement tender notices were shortened..

Actors and Stakeholders

 Who proposed the solution, who implemented it and who were the stakeholders?
1. The cabinet committee on procurement reforms recommended to adopt eProcurement in the year 2000.
2. The Govt of Andhra Pradesh included ‘eProcurement’ as a core eGovernance initiatives in the egovernance road map of the state in September 2001
3. A high level steering committee was constituted under the Chairmanship of the Addl Chief Secretary of the state govt with Secretaries and Heads of the departments of the user departments in March 2002 to decide on all issues related to strategies , implementation of the initiative.
4. The govt finalized the Private Partner through competitive bidding process in the year 2002, Pilot agreement was entered in July 2002.
5. The platform was operationalised in January 2003 by going live with first procurement
6. Roll out orders issued in July 2004

(a) Strategies

 Describe how and when the initiative was implemented by answering these questions
 a.      What were the strategies used to implement the initiative? In no more than 500 words, provide a summary of the main objectives and strategies of the initiative, how they were established and by whom.
The traditional systems of procurement in government departments through manual modes suffered from various problems such as inordinate delays (approx. 4 to 6 months) in tender processing, heavy paper work, multilevel scrutiny that consumes a lot of time, physical threats to bidders to force cartel formation by the Contractors to suppress competition, human interface at every stage, inadequate transparency etc. Though it is known to the departments that their traditional processes are inefficient , but there were little efforts to improve them for obvious reasons . A need was felt for wide ranging reforms in the public procurement procedures in order to achieve simplification of procedures, greater transparency, better quality of work, fair competition etc.

The GoAP embarked upon E-Procurement to effectively implement and sustain these reforms and to bring in new channels (auctions and reverse auctions). Introduction of IT tools to transform the age old legacy systems in procurement which are affected by severe inadequacies is not only innovative but also challenging. The IT project was envisaged to revolutionise the manner in which procurements are done in government. The government departments and as well the suppliers would be conducting their procurement related transactions end –to –end right from invitation of tenders to issue of supply order remotely in a new environment facilitated by emerging internet technology. The GoAP constituted a high powered Project team under the leadership of Mr Ajay Sawhney, IAS, Secretary, IT, GoAP. The team was strengthened by including number of senior officers from various user departments, after they have underwent training as CIOs.


The eprocurement platform offers a superior level of security with Secure Socket Layer( SSL) encryption, strong authentication with digital certificates, PKI encryption of data and speed to conduct real time bidding over the Internet. Since its launch in January 2003 , the portal has processed 24392 transactions worth Rs 40818 Crores and yielded cost savings to a tune of Rs 2300 Crores to the Public exchequer .

(b) Implementation

 b.      What were the key development and implementation steps and the chronology? No more than 500 words
The key objectives of the e-Procurement solution are enumerated below
Demand Aggregation – The ability to aggregate Government departments demand to leverage buying power with the supply market.
Reduced inventory costs – Improved planning and management of inventory leading to lower levels of inventory
Internal Arbitrage – Ensuring consistency in goods and services costs at the best price across all Departments at item level.
Consistent and sustainable vendor development – Enabling pre-qualified vendors the opportunity to access of other government departments.
Transactional Effectiveness –. Leveraging IT tools to improve the transactional effectiveness of government departments in dealing with private entrepreneurs bidding for Govt procurements.
Reduction in Total Cost of Ownership – Understanding the supply chain and life cycle costs in procurement to establish value adding supply relationships leading to reduced cost of doing business for both government and industry
Effective Tender processing - Use of different types of e-Auctions to get better deals
Level playing field and “fair” competitive platform for the suppliers
Smart governance – Increased transparency, monitoring and control of procurement process
Core capabilities of the Platform: The platform provides

· Electronic tendering
· Rate contract based procurement
· Dynamic pricing engine (Auctions, Reverse Auctions)
· Contract Management

(c) Overcoming Obstacles

 c.      What were the main obstacles encountered? How were they overcome? No more than 500 words
Phased Implementation : The solution has been implemented in phases. A Pilot was conducted in four selected departments is launched in January 2003. On the successful completion of the pilot phase, e-procurement was quickly rolled out through a govt order (July 2004) to other departments for all procurements costing above Rs 10 lakhs. E-procurement is presently implemented in 13 govt. departments, 18 Public Sector Undertakings, 70 Municipalities, 4 autonomous institutions. Till Dec 2006, the departments have transacted 23,100 tenders aggregating to Rs 40,140 crores have been processed through the platform.
Security and Authentication:
The stakeholders have to be effectively convinced beyond any doubt that the transactions on the platform are secure. The identity of bidders participating and their quotations are very sensitive information in the entire tendering process.

Change management:
Change Management with Stakeholders was very critical to the success of the e-procurement project. To make the stakeholders to use the platform was a big challenge. The Implementation needed enormous efforts in change management. The users were slow to adapt to the change during the initial period and the project leaped up once the users were comfortable with new system.

Public Private Partnership Business model:

The GoAP has implemented E-Procurement project in the innovative public-private-partnership (PPP) model, in view of the technology intensive nature of the project. The government has the domain expertise but do not have the best expertise in software/ Information Technology and whereas the private enterprise has technology, skill set to convert the manual processes into computerized processes. In this model, the expenditure on hardware and software as well as its extensive customisation is borne upfront by the service provider without any investment by the Government.


Simplification and standardisation of procurement process
The procurement processes and tender forms followed by various departments for works tenders have been standardised. The simplified and standardised processes have cut down the tender lead times, subjectivity element in evaluation as the system has the capability to auto evaluate the tenders based on the technical parameters assigned by the departments and the suppliers response and has considerably improved the efficiency of government departments in finalizing the tenders.

(d) Use of Resources

 d.      What resources were used for the initiative and what were its key benefits? In no more than 500 words, specify what were the financial, technical and human resources’ costs associated with this initiative. Describe how resources were mobilized
The innovative initiative has made visible social Impact by delivering the following benefits to the society.

· Transparency: The citizen has assurance that procurement or projects are being routed in the most transparent manner. All the information on the transactions and the evaluation is available on the portal and is easily accessible.

· Faster implementation of projects: The citizen is benefited in the form of faster implementation of govt funded projects. This has been possible because the tender processing time has been reduced by approx. 70%. The projects see the light of the day faster than before.

· Reduced cost of Governance: Due to increased efficiency, the time spent on the processes had reduced to the tune of approx. 70%. This has resulted in reduced cost of the govt. machinery and overheads.

· Savings on Taxpayers money: The citizen is satisfied that the tax money is being spent wisely. The contracts have been awarded in the most transparent manner. The cost of projects has come down significantly. Cost reduction of approx. 12%-16% has been achieved.

· Increased reach & business opportunities for Suppliers: Earlier the suppliers had to physically scan several newspapers to keep track of tenders called by the various departments. Now, the E-Procurement exchange centrally makes available all the procurement requests emanating from the departments available to the suppliers. It allows the suppliers to access the tender document and submit their bids online by paying transaction fee to the service provider. Due to the project, the suppliers have been able to participate in the procurement process of a large number of departments at vastly reduced cost of transaction.
· Clean platform providing equal opportunities to of small & medium suppliers: Earlier, small and medium suppliers were harassed and physically prevented form participating in the tendering process. They were either not allowed to purchase the tender document or submit their bids against a tender. However, through the e-procurement exchange, they can easily participate in the government’s procurement process remotely by sitting in their offices.
· Elimination of Contractor/ Supplier cartels: The tendering process has been made completely anonymous till the bid opening stage. Only after the opening of bids, does anyone come to know the names of the bidders. Due to this lack of information, the suppliers have been prevented from forming a cartel. Now the bids are received from a wider section of small and medium Suppliers.
· Standardisation of processes: At the outset, an effort was made to standardize the procurement processes and forms followed by various departments and especially for works tenders. Today, all the departments follow common tendering process and forms for works tenders. Even these processes are in the process of being re-engineered to further improve the efficiency and curtail subjectivity in tender evaluation on the part of the department users. A similar exercise is underway for products as well.

Sustainability and Transferability

  Is the initiative sustainable and transferable?
Sustainability:
The eProcurement project is institutionalized with the active involvement of participating GoAP departments. The procurement processes on the platform are standardized and the stakeholders have got used to the system pretty quickly. The following factors have helped in sustaining the eprocurement initiative.
a) Political Mandate:
The Cabinet sub-committee has recommended for adopting this initiative as part of procurement reforms and the implementation has the approval of state cabinet.

b) Institutional structure:

(i) Empowered Steering committee A steering committee, chaired by the Chief Secretary of the state has been formed to monitor and implement the project.
(ii) Nodal agency: The IT&C department of the Government has been empowered to oversee the implementation of the project. Chief Information officers are designated as dedicated resources to steer the project.
(iii) Departmental committees under the Heads of departments to steer the project within the department
c) Objectives Achieved
The project was very successful in achieving the objectives envisaged. The acceptability by the stake holders (i.e. buyers and the suppliers) also ensures that the project will sustain and not look back. This is also reflected by the speed with which the transactions are scaling-up within departments and the increased participation by suppliers.
d) Revenue model
The project has been structured on a PPP- ASP model. This means that all the investment in the project is made by the private partner (C1 India) and the suppliers participating in the tenders pay only as they use the services of the e-procurement exchange. The participating departments are not required to make any huge investments to join in the portal. The departments and the suppliers only require a computer with an internet connection to access and use the exchange.

eProcurement corpus fund
The govt has setup a corpus fund out side the regular treasury controls with contributions from all the successful vendors on eProcurement platform. 50% of the accruals are channelised back to the participating departments for buying computers, peripherals, internet connections & balance 50% is retained with the nodal agency, for consolidating the initiative like conducting refresher trainings to users, seminars and work shops etc.


Transferability:

The procurement processes followed by the government and government organizations are similar. Therefore the procurement processes incorporated and supported by the e-procurement exchange for the various departments and corporations of the Government of Andhra Pradesh are representative of the procurement processes followed by any Government in the country and can be used by any of them.

The e-procurement exchange is built on an Internet architecture i.e. the exchange can be accessed by anyone from anywhere through internet. The user department is not required to invest in software or servers. Only desktop computers and internet connection is required to access the exchange. Suppliers can access the exchange from internet cafes.

The learnings in Andhra Pradesh state will form the basis of implementation in other states. This will compress the implementation time frame and also result in huge reduction in cost.

Lessons Learned

 What are the impact of your initiative and the lessons learned?
o The support of political leadership and the formation of a high-powered steering committee (project implementation committee) with a mandate to take quick decisions on all issues were important factors for successful implementation of the e-Procurement project.
o Constant review & monitoring by the Secretary IT&C dept, nodal agency to implement the project has helped a great deal in sorting out several issues at the govt level.
o Insistence on a single mode of bid submission through the e-Procurement platform was a decisive factor in the adoption of the system by suppliers.
o The stake holders derive advantages in a state wide procurement portal for common usage of all govt entities & suppliers than a silo type platforms by each and every govt department/entity.
o A participative design process that involved workshops attended by department users, suppliers/contractors was used to draw user requirements. Subsequent training of users was a major factor in developing the application to the satisfaction of users.
o Implementation needed enormous efforts in change management. The users were slow to adapt to the changes in initial period but the project ramped up once the users became comfortable with the new system.
o The pool of domain experts from various government departments trained as Chief Information Officers at IIM-A, acted as Change agents in implementing e-Procurement. The pace of implementation accelerated with Chief Information Officers taking over as project champions.
o The selected Application Service Provider (ASP) business model under Public Private Partnership was helpful in scaling up the transactions during roll out, as the private partner has resources to meet the challenge. 24X7 help desk, strong security features, deployment architecture and MIS have contributed to the overall success of the e-Procurement platform in AP.
o A rational and affordable Pricing model based on value and number of bids per tender is important for sustaining the e-Procurement initiative. No cost to government and an affordable fee structure payable by each participating bidder facilitated easy roll outs to government departments and gained acceptability from the supplier community.

Contact Information

Institution Name:   Information Technology and Communications Department, Govt of Andhra Pradesh
Institution Type:   Government Department  
Contact Person:   Bikshapati K
Title:   Project Manager  
Telephone/ Fax:   +91-40-23451055
Institution's / Project's Website:   +91-40-23450103
E-mail:   pmeprocurement@ap.gov.in  
Address:   217,A Block, Secretariat
Postal Code:   500082
City:   Hyderabad
State/Province:   Andhra Pradesh
Country:   India

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