Companies will be eligible to bid for public procurement contracts even if they aren’t profitable, two officials aware of the matter said on Thursday, as the government seeks to save pandemic-hit private suppliers, particularly small and medium entities, from disqualification.
The profit criterion for prequalification in government tenders has been discontinued with immediate effect, the officials said on condition of anonymity. Now, the eligibility of a supplier will be judged solely on the basis of its net worth (equity plus free reserves). Until now, a company has been required to both have a positive net worth and be profitable to be an eligible bidder for government contracts.
“The government has accepted the industry suggestion that the financial capability of the bidder to execute the contract should not be judged on the basis of profitability, but on the basis of net worth,” one of the two officials said. The net worth of a company is the total value of its assets minus debt.
Before this amendment, a clause in the Manual for Procurements of Goods-2017, the guide book for public procurement, forbade loss-making companies from participating in public tenders. The clause read: “Bidder Firm (manufacturer or principal of authorised representative) should not have suffered any financial loss for more than one year during the last three years..”.
The clause stipulating positive net worth for prequalification has been retained, the first person said. The clause reads: “The net worth of the bidder firm should not be negative,” and also “should have not eroded by more than 30% in the last three years.”
The move will be of immense help to micro, small and medium enterprises (MSMEs), many of which have suffered financial losses in 2020-21 because of the devastating impact of the Covid-19 pandemic and the 68-day nationwide hard lockdown to curb the spread of the viral disease, industry experts said.
“The change made in the prequalification criteria in respect of profitability of bidders to government tenders is a welcome initiative and it will also benefit MSMEs, which would have been adversely affected due to the impact of Covid-19 and suffered financial losses,” PHD Chamber of Commerce and Industry president Sanjay Aggarwal said.
“However, it is desirable that the net worth criteria laid down in the policy be reviewed and the condition that their net worth should not have been eroded by more than 30% also needs to be removed if the bidders have adequate financial strength to execute the tendered quantity,” Aggarwal said.
Divakar Vijayasarathy, founder and managing partner of consulting firm DVS Advisors LLP, said the retention of the clause means any loss would have an impact on a company’s net worth although the margin of 30% prescribed in the manual would provide a bit of a cushion.
“The pandemic has impacted various MSMEs severely and there is every possibility that net worth of some of the MSMEs would have been eroded by 30% on account of this. An additional exemption for the pandemic year would have been even better,” he added.
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