The government has removed the profit criterion of its public procurement policy to save pandemic-hit companies, particularly small and medium firms, from disqualification, two officials said, requesting anonymity.
The profit criterion for pre-qualification in government tenders has been discontinued with immediate effect, the officials said. Now, the eligibility of a firm will be judged on the basis of its net worth only. Earlier, fulfilling both criteria was necessary to become an eligible bidder for government contracts, they said.
“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 them said. The net worth of a company is the total value of its assets minus debts.
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Before this amendment, a clause in the Manual for Procurements of Goods-2017, the guide book for public procurement forbade companies in loss to participate 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.”
However, the clause stipulating positive net worth for pre-qualification has been retailed, the first person said. The clause said “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.”
Industry experts said the move will immensely help micros, small and medium enterprises (MSMEs) as many of them had suffered financial loss in 2020-21 due to the devastating impact of Covid-19 pandemic. “The change made in the pre-qualification criteria with respect to the profitability of bidders to government tenders is a welcome initiative and it will also benefit the 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. The net worth of a company also gets eroded in case of financial loss to the company,” he said.
Divakar Vijayasarathy, founder and managing partner of consultancy firm DVS Advisors LLP, said, “Since the net worth criterion is still in force, any loss would continue to have its impact; however, the margin of 30% prescribed in the manual would provide some 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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