Indian Railway: Contractors making Raining Profits by twisting the Policy in a cartelized manner!
Does it mean the OEMs are given approval by the Railway only for contractors who are in criminal understanding with S&T officials?
Tenders of Stores were not finalized and retendered by S&T department so that purchase of material is delayed and taking the excuse of urgent construction work they have shifted purchase policy from Stores to Works! How will OEM supply through Stores if there is no purchase order issued?
Last year, Railway Board with the due approval of Minister for Railways, formulated a policy to purchase Digital Axle Counter (MSDAC) and some other Signalling items through Stores tenders vide Railway Board Letter No. 2020/RS(G)/779/12 dtd. 18.02.2021 as these same materials were being taken under Works at comparatively very high rates.
Procurement through Stores department further helps in savings as the process involves online bidding followed by reverse auction and final negotiations, and finally splitting of quantity which is not in case of Works tenders or EPC contracts.
Railway Board Stores issued a letter no. 2020/RS(G)/779/12 dtd. 02.05.2022 for procurement of items on a rate contract basis and which are required for signalling projects. The system of procurement signalling items in South Eastern Railway has been cited as an example which can be considered as an ideal system for project management related to signalling work.
See the Railway Board’s reference
“Subject: Procurement of signaling items – timely execution of signaling projects – Signaling projects are being executed across IR. Timely completion of these projects is a priority area. Various items required for the projects are stores supply items and timely completion of projects depends on timely availability of the items as per the requirements of the projects. In this reference, the rate contract system adopted by South Eastern Railway is being shared as a good procurement practice which may be adopted as feasible.” Railway Board letter No. 2020/RS(G)/779/12, dtd. 02.05.2022. Digitally signed by CHANDAN KUMAR, Director Railway Stores(IC) Railway Board.
In such cases of rate contract, rates are reasonable and economical as compared to works contract due to the following reasons as stated in Para-wise comments by PCMM/SER on the letter of PCSTE/SER No.S&T/S/335/Pt. dated 10.11.2020 (File No. SER/HQ- STOR0G(50)/ 2/2022-SEC-50/PCMM/GRC):
“The procurement is done directly through RDSO vendors directory or their authorized dealers in Stores tender. In works contract, such items are sourced by the Railways through work contract agency (Since, work contract in many cases are not undertaken directly by such RDSO vendors or their dealers). Such work contract agencies, which are different at different places, charge their own margins while quoting the rate in works tender. By procurement through Stores this works contractorsтАЩ margin is eliminated.
In Works Contract, based on the schedule of items, the work contractor gives “%age above/below” rates for the whole schedule consisting of many items. The work contracts are also for a prolonged period. In such cases, during the execution, if prices of some items of the schedule comes down (like for signaling cables, last year when the prices dropped by almost 20-25%), the lower rates cannot be availed by the Railways, in case cable is sourced through work contract.
Whereas in a Stores contract, we are able to avail such lower rates by short-closing of the existing contract or by floating a parallel contract expeditiously or by imposing a lower rate with mutual consent. Apart from above, the duration of Stores contract is relatively shorter period and as such Stores are supplied at a reasonable rate prevalent at that time.
Para 2 : For IPS and MSDAC, rates for components are also called in the tender, so that in case there is more/less requirement of some components, the same can be ordered conveniently. This ensures customization of the equipment as per actual site requirement. RGC in Annex-D may be referred to.
Para 3 : This is a good idea, but we have not yet started it.
Para 4 : This is being done for most of the items, like SSDAC, MSDAC, IPS etc.
Para 5: Warranty is reckoned as per IRS terms and conditions or specification whichever is beneficial to the Railways. Many a times, since the site readiness is done by the Railways with many delays after supply of the equipment (as in the case of IPS/SMPS), the suggestion of PCSTE needs further deliberations and examinations.”
Material lies in the consignee’s godown
To ensure that the materials do not come much in advance to the requirements and lie in the consigneeтАЩs godown, suitable clause is incorporated in tenders/contracts that the consignees will intimate the firms about 5/6 months prior to tentative readiness of site to commence production, supply and install. This way, the consignees are authorized to source the materials at right time, when the same is actually required by them and direct the suppliers when to start manufacturing materials from them. Thus, if one compares the cost of procurement, quoted value per Detection Point (DP) is much lower if Railway procures these items through Stores tender.
With a lot of emphasis on E-procurement (through GeM), which is a faster and efficient process with value for money, policy was made by Railway Board that procurement of Axle Counter should be done through Stores tender on Indian Railways like it is done for Cables, IPS etc.
Comparing price difference
Purchase of Axle Counter through works tenders comparing price difference with procurement through stores increase the burden of the public exchequer by more/less Rs. 1500 crores annually considering the annual demand of 30,000 Axle Counters in Indian Railways as the price of Axle Counter through Works is approximate 8 lakhs compared to Stores purchase of approximate 3.5 lakhs to 4 lakhs.
Now Railway Board issued another new purchase policy vide Rly Bd’s letter no. 2020/SIG/17/PROCUREMENT Dtd. 27.07.2022 for procuring S&T material for Mult Section Digital Axle Counter (MSDAC) through Works contract also.
Zonal Railways delayed the finalisation process
Available data reflects that Stores tenders of 9945 MSDACs were floated. However Railways have awarded only 331 numbers in a span of two years. This is because the Signalling Officers at Zonal Railways delayed the finalisation process being Tender Committee (TC) Members. If these all orders were issued OEMs would have directly and on time supplied the required material (Axle Counter). This policy has left the decision in hands of PCSTEs who now in conclusion with contractors will misuse the policy to purchase only through Works contract and at very exorbitant rates so that contractors can earn Super-Nirmal-Profits and provide illegal gratification to the concerned officials.
This Works/EPC tenders for Axle Counter are floated by some Zonal Railways by PCSTE so that the Signalling Officers get direct hand in gloves with corrupted contractors who quote exorbitant rates which are twice the actual cost of Axle Counter and this purchase of Axle Counter through Works/EPC ensures price is controlled by the contractors/traders/mediators, and not OEMs.
This is the main reason these Signalling Officials are making efforts and are promoting cartelization so that there is no direct dealing with Stores Officials as they have no vested interest and simply work as per rules and procedures and issue orders based on current market prices and last purchase rates of awarded Stores orders.
It seems OEM obtains approval only for contractors who in criminal understanding with Signalling officials charge twice the rate to the Railways without any value addition.
Tenders of Stores were not finalized and retendered by S&T department as TC Members so that purchase of Axle Counter is delayed and taking the excuse of urgent construction work they have shifted purchase policy from Stores to Works. How will OEM supply through Stores if there is no purchase order issued?
The cost of the Digital Axle Counter through Works/EPC cannot be negotiated directly and the prices are up to the decision of the contractors who charge super-normal-profits and Railways have no methodology to evaluate the price of the same as the rate is compositely quoted in form of percentage.
The contractors end up supplying the Axle Counter immediately on receipt of the Works LOA from Railways which exhausts and blocks the crores of Railway funds as the work is actually completed after 1-2 years. This is so that the super-normal-profits can be immediately realised by the contractor.
On the other purchase through Stores tenders ensures the consignees will intimate the firms about 5/6 months prior to tentative readiness of site to commence production, supply, testing and installation. This way, the consignees are authorized to source the materials at right time and place, when the same is actually required by them and direct the suppliers when to start manufacturing materials from them and not stock it and prevent huge financial loss and burden to the Railways and also pilferage.
As per reliable sources, some works contractors have formed a very strong cartel and pay the huge illegal gratification to the Railway Board Signalling officials and Zonal S&T heads so that this new shocking policy causing thousands of crores loss is made and implemented so that they can earn hundreds of crores for themselves.
Data reveals:
4. Contractor sells to the Railways @ Rs. 7.5 lakhs per Detection Point.
5. Total demand: 30,000 Detection Point per annum.
6. Contractor profit: Rs. 4,50,000 x 30,000 DP = Rs. 1350 crores (Rs. Thirteen Hundred Fifty Crores only).
7. These Rs. 1350 crores loss to the Nation and this tax payers money will go to the pockets of Railway Babus.
A big Nexus was exposed
In 2020, a vigilance case was registered to investigate the high prices charged by Works contractors to Railways for Axle Counter. Vigilance investigation report revealed there was a very big nexus between Signalling Officers and Signalling Contractors and cartel existed. On the advise of vigilance, S&T department to hide their wrong doing immediately changes procurement to Stores from Works through their policy letter dtd. 18.02.2021.
But they played foul by not letting any tenders be finalised. In Works contract supply of Axle Counters is made immediately and itтАЩs installation is done after two years causing huge losses to Railways. In case of Stores procurement the supply of Axle Counter is made based on readiness of site as also cited in Railway Board’s letter dtd. 02.05.2022.
Now, to take the cognisance of above facts, India, to say humbly, is stuck between the devil and the deep blue sea. The country is facing both the type of inflations, demand-pull as well as cost-push. The situation has been made worse by the Russia-Ukraine war. Russia and Ukraine are major exporters of important commodities.
This includes oil, wheat, rare metals and fertilisers. The oil prices have skyrocketed since the war outbreak. And it is particularly troublesome as no transportation is possible without oil. So, if oil rises, the price of every commodity rises.
Though India is growing economically but the growth of this kind is creating two much demarcated societies тАУ one poor and another rich. Indian Railways Signalling Department is adding salt to this by handing more than Rs. 1350 crores in hands of ‘Lalachi’ Contractors and the corrupt Babus and making them super-rich when that money should be saved and used for the public cause.
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