e - Procurement - Government of Karnataka

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Initiative – background, reasons for project initiative and the period / duration.

The traditional method of manually managing the procurement processes in
government departments / agencies resulted in heaps of files, records and documents, often
stored in isolation within sections / wings / departments. A simple comparative study or an
investigation on procurement activities typically involves physical search and retrieval of
relevant files / records / documents and the concerned official had to spend substantial
amount of official time and effort to have an access to the relevant file / record / document.
The traditional manual method of procurement paves way for formation of bidder cartels,
depriving suppliers / contractor communities exercise their right for participation in tenders.
The formation of bidder cartels increases the bidding price, forcing the government to
execute works / undertake purchases at costs much higher than the market rates, leading to
unproductive use of tax-payers money.

The procurement methodologies followed in each government departments / agencies vary
depending on the type and nature of procurement. Thus, a supplier / contractor intending to
bid for tenders published by various departments need to search the various requirements in
the tender document and subsequently understand the methodology of procurement. Also,
many a time, the prospective bidder is deprived from purchasing the tender document.
Sometimes, the prospective bidder is physically prevented by vested groups from
purchasing / submitting tender documents. The manual mode of tendering often results in
the same set of suppliers / contractors participating in tenders, leaving very little scope for
other suppliers / contractors from other regions / states / nations to participate, leading to
unhealthy bidding environment. The lack of competitive bidding environment leads to
escalation of bid prices and non-judicious selection of right supplier / contractor. The
facilitation of a healthy competitive bidding environment is likely to be affected due to the
traditional manual mode of procurement practices.

Country’s first Unified End-to-End e-Procurement solution was aimed to enhance
transparency, accountability, reliability and responsiveness in all government procurement
activities. The e-Procurement system implemented is an ‘End-to-End’ solution. The system
facilitates automation of the entire procurement cycle from the stage of estimate / indent
creation till the payment to the contractor / supplier. The e-Procurement system is a ‘Unified’
solution, i.e., the common platform is used by all government departments / agencies
patronising it. The implementation of e-Procurement system has enabled bidders to easily
navigate through the tenders published by various government departments / agencies and
efficiently submit tenders. Also, the system has enabled departments in standardisation of
procurement methodologies and instant retrieval of MIS, saving substantial amount of time
and energy, effectively using the saved time in efficient execution of procurement activities.

The e-Procurement system is implemented through a Public Private Partnership (PPP) on
Build-Operate-Transfer (BOT) model with no initial cost to the Government. The Private
Partner designed, developed, deployed and maintains the solution for a period of 5 years.
The revenue to the Private Partner is based on transactions depending on the usage of
supplier registration, e-tendering and contract management / catalogue management
modules by suppliers / contractors. A nominal fee is charged from suppliers / contractors
during registration, bid submission and finalization of work order / purchase order, which is
shared between Private Partner and Centre for e-Governance on a pre-determined revenue
sharing pattern The project was formally launched by His Excellency, the Governor of
Karnataka on 13th November 2007.

Purpose & priorities of the initiative

The objectives of the e-Procurement project are as follows.

       To create infrastructure for effective implementation of procurement policies
       To enhance transparency and accountability of government working
       To promote competitive market-driven bidding
       To enable ease of access to contractor community
       To provide a common environment for all types of tenders
       To handle entire procurement process (end-to-end) in an online environment
       To involve less paper, thereby, adopting green working

A conscious decision was taken to provide the required IT infrastructure (Desktop
Computers, Uninterrupted Power Supply (UPS), Multi-Functional Devices (MFDs), Internet
Connections) to user-departments / agencies on gap-filling approach. The provision of IT
infrastructure ensures availability of necessary infrastructure to facilitate quick adoption of e-
Procurement system, especially in offices located in remote areas of Karnataka.

To address the training needs of government officials and suppliers / contractors, two
dedicated training facilities were established. The training facility in Bangalore
accommodates 30 persons in each of the two training rooms and the training facility in
Forest Training Institute, Dharwad accommodates 25-30 persons. A total of 4000
government officials and 2500 suppliers / contractors were trained till 31 March 2010. Apart
from the training session, several e-Procurement workshops were conducted to provide
publicity and awareness on the usefulness and benefits of e-Procurement system.

One of the key purposes of implementing the e-Procurement system was to eliminate bidder
cartels so as to promote healthy competitive bidding environment. The e-Procurement
system supports national and international bidding wherein suppliers / contractors can bid
from any corner of the world. The submission of bids happen in strict confidentiality wherein
one can neither know the number of bids submitted nor the bidder information till the last
date and time of receipt of bids. It is only after the lapse of the last date and time of receipt of
bids that the respective government official can view the list of bidders. The e-Procurement
system facilitates free download of tender documents as soon as tenders are published in
the e-Procurement portal, enabling bidders to download tender documents any where/any

The other key purposes of implementing the e-Procurement solution included the need to
standardize procurement processes across all government departments / agencies, the
need to automate the payment mechanism for suppliers / contractors post award of contract
/ issue of purchase order, ensure transparency in publishing, receipt and evaluation of
tenders, ensure accountability in procurement processes and enable government officials
with instant customized MIS for effective and efficient decision making.

Strategies adopted / mode of transformation with details of roles of various

One of the prime strategies used to implement the Unified End-to-End e-Procurement
system was to ensure buy-in from the Public Works Department, which is a major
procurement department in Government of Karnataka. A key official of Public Works
Department was designated as Project Officer, e-Procurement, to provide crucial inputs
during the implementation phase. As works-related procurement constitute a major share,
compared to goods-related and services-related procurement, the deputation of the official
from Public Works Department proved critical and essential.

The other prime strategy was to provide IT infrastructure and internet connectivity to user-
departments / agencies on gap-filling approach in order to ensure the necessary IT
readiness, especially in remotely located offices. The IT infrastructure included desktops,
uninterrupted power supply (UPS) and Multi-Functional Devices (MFDs – for copying,
scanning and printing). Some of the offices were provided with broadband internet
connection to enable them access the e-Procurement portal at all time.

The other important strategy which facilitated implementation of e-Procurement was to
amend the Karnataka Transparency in Public Procurement Act (KTPP Act) to include e-
Procurement as the mode.

The other strategies which were instrumental in successful implementation of e-Procurement
system are as follows.

 -       Deployment of infrastructure through the use of Digital Signature Certificates for all
         transactions / workflows in the e-Procurement system (to ensure reliability and

 -       Centralised one-time supplier / contractor registration, enabling them to submit tenders
         for all tenders published in the e-Procurement portal (suppliers / contractors need not
         register separately in each department / agency for submission of tenders and
         subsequent execution of contract / order)

 -       Establishment of dedicated training facilities for e-Procurement project (facilitates
         prompt adoption of e-Procurement system)

 -       Establishment of e-Procurement Cell (with outsourced skilled resources hired from
         market) to executive day-to-day activities

 -       Online tender payments (tender processing fee, EMD, auction fee, auction EMD),
         online refund of EMDs and online payments to suppliers / contractors post award of
         contract / issue of purchase order

The stakeholders of the e-Procurement project include government departments / agencies,
supplier / contractor community, business organisations and banks. The Centre for e-
Governance, a society established by the Government of Karnataka under e-Governance
Secretariat, DPAR [AR] and registered under Karnataka Societies Registration Act, 1960, is
designated as the Nodal Agency to implement e-Procurement system. The roles of various
stakeholders are as follows.

* Centre for e-Governance

     −    Facilitate departments in understanding the system of e-Procurement.
     −    Prepare department mapping document (organisation chart, delegation of powers,
          workflows, roles and attributes)
     −    Collection and reconciliation of tender payments and other payments.
     −    Online refund of Earnest Money Deposit (EMD)
     −    Scheduling workshops / training for government officials and suppliers.
     −    Issue Digital Signature Certificate (DSC) through NIC.
     −    Process application change requests
     −    Monitor the performance of Application Service Provider
     −    Appoint suitable banks, third party system auditor and accounting firm

* Government Department / Agency

   −   Designate a nodal officer for e-Procurement.
   −   Extend cooperation to support personnel deployed by Service Provider.
   −   Relieve officials for training, workshops and train-the-trainer programmes.
   −   Suggesting changes / reforms in the e-Procurement application

* Application Service Provider

   −   Design, develop, test, deploy and maintain e-Procurement software
   −   Provide helpdesk support to resolve technical and operational issues.
   −   Provide handholding support to user-departments
   −   Provide training to government officials and suppliers / contractors
   −   Incorporate necessary changes / reforms in the e-procurement software

* Suppliers / Contractors

   −   Report problems encountered during supplier registration and bid submission
   −   Suggest modification / addition of features to improve user-friendliness
   −   Maintain up-to-date information (especially bank account information) in the e-
       Procurement portal
   −   Maintain up-to-date versions of anti-virus softwares, DSC drivers etc.

* Banks

   −   Ensure seamless operations in collection of online payments through various modes
       (Credit Card, Direct Debit, NEFT/RTGS, Over-the-Counter)
   −   Ensure prompt online refund of EMDs into the bank accounts of bidders
   −   Suggest modification / addition of features in e-Procurement software to improve
   −   Submit periodic statements for accounting purposes

* Third Party System Auditor

   −   Conduct system audit, which include functional audit, security audit, systemic
       infrastructure audit
   −   Conduct periodic audit as needed by Government
   −   Submit required audit reports
   −   Suggest measures to improve the e-Procurement system

Outcome i.e., impact / benefits resulting from the project

The e-Procurement system had considerable impact on supplier / contractor community as
the solution enhanced transparency and accountability of government procurement
processes, enabled free download of tender documents, reduced travel to government
offices, provided convenience in submitting bids anywhere/anytime, maintaining strict
confidentiality of the bidder till the last date and time of receipt of tenders.

The e-Procurement system also had substantial impact on government departments /
agencies as it eliminated bidder cartels, enabled them with instant customized MIS reports,
reduced procurement cycle time, facilitated healthy competitive bidding environment,
enhanced bidder participation and standardised procurement methodologies.

The impact of e-Procurement system on citizens is primarily in providing real-time status on
government procurement activities and ensuring better utilisation of tax-payers money. Also,

the availability of all procurement-related information in the e-Procurement portal served as a
one-stop shop for citizens to access relevant information.

In terms of savings, the achievements of some major user-departments through the use of e-
Procurement platform are as follows.

   -      Bruhat Bengaluru Mahanagar Palike (BBMP) has observed a negative premium of -
          6.51% which translates to a saving of around Rs. 240 crores on procurement of Rs.
          6000 crores and effective savings in excess of Rs. 300 crores compared to 10%
          premium through manual procurement process.

   -      Bangalore Development Authority (BDA) has observed a negative premium of -
          11.70% after adoption of e-Procurement platform which translates to a saving of
          around Rs. 310 crores on procurement of Rs. 3000 crores and effective savings in
          excess of Rs.400 crores, compared to 10-15% premium through manual
          procurement process.

   -      Public Works Department (PWD) has observed a premium of 11.75% after adoption
          of e-Procurement platform which translates to a saving of around Rs. 600 crores on
          procurement of Rs. 5000 crores considering 20-30% premium through manual
          procurement process.

One of the key benefits to the government departments / agencies using e-Procurement
platform is accessibility to instant customized MIS reports. The entire history of procurement
viz., indent / estimate creation, date and time of publication, date and time of receipt of
tenders, workflow and time duration for each stage of evaluation, details of successful bidder,
date and time of issue of work order / purchase order, workflow and time duration during
processing of bills / invoice, extent of execution of work / supply of goods, date and time of
payments to suppliers / contractors etc., are logged and instantly accessed any time/any
where. The e-Procurement platform is being used as an excellent Decision Support System
to enhance the effectiveness, efficiency and quality of decision making process.

Comparative Analysis

In order to assess the usefulness of the e-Procurement platform, a comparative study was
conducted on some of the key result areas and key performance indicators before and after
the implementation of the project. The study was conducted in Bruhat Bengaluru Mahanagar
Palike (BBMP), Bangalore Development Authority (BDA), Krishna Bhagya Jala Nigam Ltd.
(KBJNL) and Public Works Department (PWD). The bidder participation and tender premium
were considered as key performance indicators. The key result areas include the ease of
use and the effectiveness of the system. The study involved collection of data pertaining to
similar procurement activities performed before the implementation of e-Procurement project
and after the implementation of e-Procurement project. While the average bidder
participation and tender premium were objective, the ease of use and usefulness is
subjective. The impact of the e-Procurement platform was measured in terms of operational
and financial benefits, through formal and informal interactions with various users. The
comparative analysis is as follows.

            Department                                     Before             After
Sr. No.                           KRA / KPI
             / Agency                                  e-Procurement     e-Procurement
                         Avg. Bidder Participation          2.8                5.8
                         Tender Premium (%)                30.25             -10.02
   1          BBMP
                         Ease of Use (1-10 level)            1                  9
                         Effectiveness (1-10 level)          3                  9

                        Avg. Bidder Participation           2.2              9.00
                        Tender Premium (%)                  10.4            -17.95
   2         BDA
                        Ease of Use (1-10 level)            3.5               9.5
                        Effectiveness (1-10 level)           2                9.5

                        Avg. Bidder Participation            1.6             4.2
                        Tender Premium (%)                   25              12.5
   3         PWD
                        Ease of Use (1-10 level)              4               9
                        Effectiveness (1-10 level)           1.5             8.5

                        Avg. Bidder Participation           4.2               9.4
                        Tender Premium (%)                  20.2             11.5
   4        KBJNL
                        Ease of Use (1-10 level)            2.5                9
                        Effectiveness (1-10 level)           2                9.5

Highlights / features of the initiative

Innovativeness of the initiative and its replicability

The Unified End-to-End e-Procurement platform is an innovative ICT project which
transformed procurement practices in Government of Karnataka. The government
procurement processes were reengineered to eliminate the constraints confronted in
traditional procurement practices. Prior to the implementation of the project, the procurement
processes were based on traditional methods wherein the entire procurement activities were
manually managed and maintained in physical files, documents and records. All data and
information related to procurement were stored in separate files in different physical
locations. A simple comparative study to analyse procurement activities for similar type of
work / goods would involve physical retrieval of relevant files / documents, consuming
enormous amount of time and energy.

The implementation of Unified End-to-End e-Procurement platform has enabled the
government departments / agencies in automating the entire procurement cycle (supplier /
contractor registration, indent management, e-tendering, e-auctions, contract management,
catalogue management) with a facility to retrieve MIS anytime and anywhere. The platform is
now serving as an excellent Decision Support System for the Government to efficiently plan
its procurement activities and effectively execute them.

Some of the unique characteristics of the project are as follows.

   -     Public Key Infrastructure (PKI) enabled work flows using Digital Signature
   -     Asymmetric Bid Encryption / Decryption
   -     Use of Open Source Technology
   -     e-Payment Integration
   -     Dedicated training facilities
   -     Appropriate Amendment to Karnataka Transparency in Public Procurement (KTPP)

Increased efficiency of processes and effectiveness of outcomes
The e-Procurement platform was launched in November 2007 with a few government
departments / agencies, adopting initially. The first few months involved resolving technical,
administrative and training issues and stabilizing the system. The pace of usage of the e-

Procurement system picked up in the year 2008-09 when several government departments /
agencies volunteered to adopt the system. Today, the e-Procurement platform is
implemented in more than 60 Government Departments / Agencies across the State of
Karnataka, including the central public sector organisation, M/s Hindustan Aeronautics
Limited (HAL). Procurements valued at more than Rs. 30,000 crores had been processed in
the e-Procurement platform.

With the implementation of e-Procurement platform, efficiency in processing the tenders has
increased 60% resulting in lessening the procurement cycle time and quickening the work /
execution time. The e-Procurement platform has also been instrumental in providing instant
customised MIS reports improving the quality and effectiveness of decision making. The
competitive bidding environment has resulted in receipt of market-based competitive prices
with savings of nearly Rs. 3000 crores, which can further be used in other development
programmes of the government.

Challenges and Obstacles

The successful implementation of the e-Procurement platform was never devoid of obstacles
and challenges. The prime challenge was change management wherein the attitude and
mindset of the government officials proved to be the biggest obstacle. A conscious decision
was taken to implement the e-Procurement solution in Public Works Department on a pilot
basis, as the department had a major share in the total procurement expenditure. The
deputation of a senior government official of Public Works Department as Project Officer, e-
Procurement Cell (to oversee the implementation of e-Procurement in works related
departments) proved helpful. The successful implementation of the solution in Public Works
Departments induced other works related departments to adopt e-Procurement solution for
processing their procurement activities.

The second obstacle encountered during the implementation of e-Procurement platform was
the lack of sufficient IT infrastructure and internet connectivity in most of the offices located
in remote areas. The Centre for e-Governance decided to provide the required IT
infrastructure (Desktops, Multi-Functional Devices, UPS, internet connections) and internet
connectivity on a gap-filling approach to offices which lack the IT infrastructure and internet

The third obstacle encountered was the availability of skilled personnel to ensure proper
implementation of e-Procurement platform and handle day-to-day activities. The e-
Procurement Cell, constituted with a clear policy to hire well qualified and experienced
resources from the market, was able to hire the right personnel, skilled in the area of IT
project management. As the resources hired from the market bring in fresh thoughts and
ideas, they were instrumental in establishing innovative work practices, capable of
enhancing the work productivity.

The other challenges included training, standardisation of procurement processes and
customisation as per needs of specific departments. The training aspect was addressed
aggressively in order impart the requisite training to all the concerned government officials
and suppliers / contractors. With the deployment of online training server, government
officials and suppliers are now able to access the training portal anywhere anytime, through

Sustainability and Scalability
The Unified End-to-End e-Procurement system implemented in the State of Karnataka is
sustainable and transferable. As the solution is based on Public Private Partnership wherein
the revenue of the Private Partner is based on the transactional revenue in the form of

Tender Processing Fee, Registration Fee and Registration Renewal Fee, the Private Partner
would ensure maximisation of the tenders in the e-Procurement portal, without
compromising on the quality of services. With more and more government departments /
agencies adopting e-Procurement, the number of tenders increased, thereby, increasing the
revenue of the Private Partner and the Centre for e-Governance. As governments spending
on procurement increased every year, so did the revenue from tenders in the e-Procurement.
This provided for the financial sustainability of the e-Procurement project.

A conscious effort was made to ensure a firm institutional structure to facilitate institution-
based decision making process rather than individual-based decision making process. The
constitution of e-Procurement Cell, Functional Specification Committee, Project Monitoring
Committee and Steering Committee indicates establishment of a sound decision-making
process. Also, the constitution of Technical Advisory Panel ensured selection of right
technologies / specifications. The e-Procurement Cell and the Committees ensured
institutional sustainability to the e-Procurement solution.

Key Learnings

One of the key learnings during the implementation of the initiative is the pilot deployment of
the solution in Public Works Department. This served as a motivating factor for other works
related departments to adopt e-Procurement solution. The amendment to the KTPP Act
proved to be a strong regulatory backbone for the purpose of disseminating the solution to
other government departments / agencies. The establishment of dedicated training centres
and online module of the training portal ensured active involvement of government officials
and suppliers / contractors on training. The extensive handholding support provided by the
Private Partner proved very critical, especially to the new user-departments / agencies. The
equitable sharing of risks and responsibilities between e-Procurement Cell and the Private
Partner played an important role in system development. The fact that Government has the
system and admin rights of the e-Procurement solution clarified to the different government
departments / agencies on any apprehension on manipulation of bid data by the Private
Partner. The establishment of e-Procurement Cell, which operates in a professional
environment, is the key to sustained implementation.

The other key elements for success of the Unified End-to-End e-Procurement solution
include adoption of pilot-based approach (rather than big bang approach), adhering to an
integrated approach ensuring user-readiness, infrastructure readiness and department
readiness (change management), re-engineering the government processes especially on
supplier registration and online tender payments (transformation of processes), ensuring
sufficient comfort level to users during initial stages of implementation (enhancing user-
involvement), incorporation of online workflows using digital signature certificates from the
beginning of implementation (enhance accountability) and establishment of a firm
institutional structure steered by senior government officials (institution-based decision
making). In short, the success of the initiative is accounted for the change in the attitude and
mindset of both government user community and the supplier community, encouraging the
transformation of processes rather than just translating the processes.

The e-Procurement system is audited by a third party auditing agency viz., M/s Ernst &
Young, to verify and test the various functionalities as per specifications and other standards
(IT Act 2000, ISO27001). The agency has conducted the following audits and tests:

   -   Functional Audit
   -   Security Audit
   -   Systemic Infrastructure Audit
   -   Hardware Infrastructure Audit

   - Vulnerability Testing
   - Penetration Testing
   - Load Testing

The e-Procurement project has been awarded the CSI-Nihilent e-Governance Award 2009,
by the Computer Society of India and Nihilent Technologies. The project was adjudged as
Exemplary project under Government-to-Business (G2B) category, selected from
nominations received from across the country.

National e-Governance Award 2009-10

The e-Procurement project has been awarded with National e-Governance Award 2009-10
(Bronze) by the Department of Administrative Reforms and Public Grievance (DARPG),
Government of India. The project was adjudged as Bronze Winner under Exemplary
Horizontal Transfer of ICT based Best Practice.



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