Technical Guide on

Internal Audit of Tendering Process

Technical Guide on Internal Audit of Tendering Process

ISBN : 978-81-8441- 547-6

2012

Price : ` 150/-
The Institute of Chartered Accountants of India
(Set up by an Act of Parliament)
www.icai.org September/2012/1,000(New)
New Delhi
 Technical Guide on
Internal Audit of Tendering Process

DISCLAIMER
The views expressed in this Technical Guide are those of author(s). The
Institute of Chartered Accountants of India may not necessarily subscribe to
the views expressed by the author(s).

Internal Audit Standards Board

The Institute of Chartered Accountants of India
(Set up by an Act of Parliament)
New Delhi
© The Institute of Chartered Accountants of India

All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted, in any form, or by any means, electronic
mechanical, photocopying, recording, or otherwise, without prior permission,
in writing, from the publisher.

Edition : May, 2012

Committee/Department : Internal Audit Standards Board

E-mail : cia@icai.org

Website : www.internalaudit.icai.org

Price : ` 150/- (including CD)

ISBN : 978-81-8441-547-6

Published by : The Publication Department on behalf of the

Institute of Chartered Accountants of India,
ICAI Bhawan, Post Box No. 7100, Indraprastha
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September/2012/1,000 Copies
 Foreword

A proper tendering process is one of the building blocks of a sound

governance system. Procedure for the acceptance of tenders and awarding
of contracts, in government or private organizations, must be transparent, fair
and open. Tendering and procurement processes must be robust and fair to
all the parties involved, such as contractors, consultants, and purchasers and
they must also meet the expected standards for good practice. Further,
E -Tendering, E-Procurement are some of technology borne issues that
introduce new layers of complexity in tendering process. Chartered
accountants are well equipped to play a meaningful role in this area by
helping the organizations to promote fair and open competition for their
business while minimizing exposure to fraud and collusion.
Considering this, the Internal Audit Standards Board is issuing “Technical
Guide on Internal Audit of Tendering Process” to help the members to play
an important role in this area. The objective of the tender audit is to assess
the present controls of the organization over the tendering process and
assist in developing a transparent and effective tender process.
I congratulate CA. Rajkumar S. Adukia, Chairman, Internal Audit Standards
Board, CA. Rajendra Kumar P., Vice Chairman, Internal Audit Standards
Board and other members of the Board for bringing out this “Technical Guide
on Internal Audit of Tendering Process” as tender is an important document
of business processes. This comprehensive publication would surely help the
members to understand entire spectrum of operational, conceptual and
practical issues related to internal audit of Tendering process.
I am sure that this Technical Guide would be an informative and useful
publication for the members.

May 11, 2012 CA. Jaydeep Narendra Shah

New Delhi President, ICAI
 Preface
Establishing an objective and unbiased approach based on which an
equitable and fair decision can be reached is ultimately the goal of an
efficient and effective tendering process. This requires a well chartered
approach and high standard of ethics throughout the tendering process, thus
resulting in efficient, economical and effective use of public and human
resources.
Cultivating openness, accountability and responsiveness is the aim of
Internal Audit of Tendering Process. Access to information which is timely,
accessible, accurate and transparent ensures social evils like corruption,
collusion and all other forms of criminality are mitigated. This possible with
the help of an effective internal control system in place, which requires
frequent monitoring in the form of Internal Audit procedures. Tender audit is
a mechanism to ensure that the existing process is in line with the
documented process and adequate controls exist to prevent and detect fraud
and errors in the tendering process.
Success of any project relies on making the right decision during tendering
processes. The need for tender audit has grown with high value orders
involving both capital and revenue purchases. Chartered accountants with
their multi-faceted knowledge are well equipped to conduct the internal audit
of tendering processes which are in a growing trend both in terms of
complexity and volume.
Having understood the need for a well chartered audit plan, the Internal Audit
Standards Board of ICAI is issuing this publication “Technical Guide on
Internal Audit of Tendering Process”, to provide extensive knowledge to the
members on the laid down practices and procedures followed by large
departments, agencies and other organizations in the tendering process.
While the methodology and procedure may differ in different situations but
the guiding philosophy of tendering is to obtain materials/ services of the
desired quality and quantity at the most suitable technical specifications,
commercial terms, affordable risk and competitive rates within a given time
frame and in a transparent manner.
This Guide covers types of tender, stages of tender, e-tendering, risk based
internal audit, pitfalls in tender and detail audit checklist of tendering
process. It contains important Central Vigilance Commission Guidelines. This
Guide does not cover tender process from vendor end, process of auctions,
special audits and investigations.
At this juncture, I am grateful to CA. P. R. Roy for sharing his experience and
knowledge with us in this area and CA. Monark Shah for preparing the draft
of the Technical Guide. I would also like to thank to CA. Guru Prasad M. for
reviewing the draft.

I also wish to thank CA. Jaydeep N. Shah, President, ICAI and CA. Subodh
Kumar Agrawal, Vice President, ICAI for their continuous support and
encouragement to the initiatives of the Board. I must also thank our
colleagues from the Council at the Internal Audit Standards Board, viz.,
CA. Rajendra Kumar P., CA. Amarjit Chopra, CA. Shiwaji B. Zaware,
CA. Ravi Holani, CA. Anuj Goyal, CA. Nilesh S. Vikamsey, CA. Atul C.
Bheda, CA. Charanjot Singh Nanda, CA. Pankaj Tyagee,
CA. G. Ramaswamy, CA. J. Venkateswarlu, CA. Abhijit Bandyopadhyay,
CA. S. Santhanakrishnan, Shri Prithvi Haldea, Smt. Usha Narayanan, Shri
Gautam Guha, Ms. Revathi Bedi, Shri Manoj Kumar, Shri Sidharth Birla for
their vision and support. I also wish to place on record my gratitude for the
co-opted members on the Board viz., CA. Porus Doctor, CA. Masani
Hormuzd Bhadur, CA. Ghia Tarun Jamnadas, CA. Deepjee A Singhal,
CA. Nitin Alshi, CA. Narendra Aneja and CA. Guru Prasad M for their
invaluable guidance and also their dedication and support to various
initiatives of the Board. I also wish to express my thanks to CA. Jyoti Singh,
Secretary, Internal Audit Standards Board and CA. Harsh Kumar, Executive
Officer for giving final shape to the Guide.
I firmly believe that this publication would serve as basic guide for the
members and other readers interested in the subject.

May 14, 2012 CA. Rajkumar S. Adukia

Mumbai Chairman
Internal Audit Standards Board

vi
 Abbreviations
BG Bank Guarantee
CAG Comptroller Auditor General of India
CVC Central Vigilance Commission
EMD Earnest Money Deposit
EOQ Economic Order Quantity
HOD Head of Department
IEM Independent External Monitors
IP Integrity Pact
IT Information Technology
LOI Letter of Intent
NOC No Objection Certificate
OEM Original Equipment Manufacturer
PO Purchase Order
PSU Public Sector Units
RFP Request for Proposal
RFQ Request for Quote
TCC Tender Consideration Committee
TOC Tender Opening Committee
 Introduction
1. Indian economy shed its policy of protectionism and opened up in the
nineties to integrate with the global economy. To scale up, it became
essential to invest staggering amounts of resources in infrastructure, energy,
health and defense. The IT revolution that took the world by storm around
this time, helped in deepening and broadening the understanding of world
affairs while at the same time, accentuating the process of governance,
transparency and accountability.
2. The sense of urgency to hasten the process of inclusive growth has
led to the need to understand, appreciate and leverage the process of
tendering to ensure optimal deployment of resources and timely
implementation of plans and projects.
3. To corroborate this approach relevant portion of an address by the
first CAG of India Shri V. Narahari Rao delivered at ICAI HQ way back on
April 5, 1954 is quoted “Accounting is becoming more and more intricate with
the advance of modern technique in industry. After all, accounts follow
facts… an accountant must have a very good inkling- a very comprehensive
idea of what he is looking into…. He has to know a great deal in each sphere
of activity. He has to be a jack of all trades. He has got to know something of
everything.”
(Source: Front cover, The Chartered Accountant Journal, Volume 60 l No.5 l
November 2011)
4. Chartered Accountants are increasingly joining industry and those
who are in practice are increasingly asked to provide advisory services,
expert opinion and undertake auditing assignments of business processes
ever growing in complexity and volume.
Keeping in mind, these requirements, this Technical Guide is meant to
enhance the capability of Chartered Accountants in evaluating and reporting
while undertaking internal audit assignments from the perspective of a
business process analyst. This Technical Guide is prepared on the basis of
the laid down practices and procedures followed by large departments,
agencies and public sector undertakings in India.
5. Tendering methodology and procedure may differ from place to place,
situation to situation, country to country, but the basic concept of tendering is
to source materials and or services of the desired quality, quantity at the
most suitable technical specifications, commercial terms, affordable risk and
competitive rates within a given time frame and in a transparent manner. A
proper tendering process is one of the building blocks of a sound governance
system. Tendering is not only the source of procurement by government
departments but also for private companies at large.
6. Objectives of tender audit are as follows:
(i) Assessing the present controls of the organization over the tendering
process
(ii) A documented process.
(iii) Existing process is in line with the documented process.
(iv) Identifying cost saving measures and effective utilization of
resources.
(v) Prevention and detention of frauds and errors.
7. This Guide is meant for awarding works and purchase contracts to
the bidder. The lowest bidder (L1) is awarded the contract. However, in case
of disposals, the process is reverse and the contract is awarded to the
highest bidder (H1). Any service provider can be termed as a vendor whether
providing service or supplying materials. Hence vendor covers the entire
gamut of service providers in this guide.
8. The purpose of this Guide is to provide members guidance regarding
conduct of audit of tender process.
(i) This Guide should be read with other standards which elaborate other
aspects relating to conduct of audit and reporting.
(ii) Tenders are very common for sourcing vendors for routine orders.
The need for tender audit arises since the value of orders is large
involving both capital and revenue purchase and due to inherent risk
of wastage and fraud.
(iii) The Guide covers various aspects about tender – general aspects,
types, stages and audit procedures.
(iv) At the end of each chapter, relevant extracts of CVC guidelines1 have
been given for reference.

1
It may be noted that CVC guidelines applies primarily to enterprises covered under
CVC Act, 2003. Its reference is drawn to make document more inclusive and also to
serve as benchmark for better practices.

x
9. This technical guide does not cover following aspects:
(i) Tender process from vendor end;
(ii) Auctions;
(iii) Special audits; and
(iv) Investigations.

xi
xii
 Contents
Foreword ....................................................................................................iii
Preface......................................................................................................... v
Abbreviations ........................................................................................... vii
Introduction................................................................................................ ix

Chapter 1: General Aspects .............................................................. 1-11

Meaning ........................................................................................................ 1
Definition....................................................................................................... 1
Party to Float Tender .................................................................................... 2
Purpose of Tendering ................................................................................... 2
Advantages and Weaknesses of Tendering .................................................. 2
Pre-requisites of Tendering .......................................................................... 3
Legal Principles Governing Tender Audit ...................................................... 4
Contract ............................................................................................ 4
Proposal or Offer............................................................................... 4
Offer versus Invitation to Treat .......................................................... 4
Acceptance of the Proposal............................................................... 5
Consideration .................................................................................... 5
Agreement......................................................................................... 5
Withdrawal of an Offer or Proposal.................................................... 6
Competency of Parties ...................................................................... 6
Communication of an Offer or Proposal......................................................... 8
Communication of Acceptance ...................................................................... 8
Discharge of Contract ................................................................................... 9
CVC Guidelines ............................................................................................ 9
Chapter 2: Tendering – A Form of Procurement ....................... 12-18

CVC Guidelines .......................................................................................... 15

Chapter 3: Types of Tender .......................................................19-25

Types of Tender .................................................................................................. 19

Global Tender ................................................................................. 20
Public Tender (PT), Deemed Public Tender .................................... 20
Limited Tender (LT), CAPEX/Regional/ Zonal Tender...................... 21
Single Tender (ST) or Tender on Nomination Basis ........................ 21
Lump Sum Turnkey Tender (LSTL) ............................................................. 22
Tender on LOT System ............................................................................... 22
Tender on Percentage Basis ....................................................................... 23
E-tender...................................................................................................... 23
International Competitive Bidding/ National
Competitive Bidding (NCB) ......................................................................... 24
Request for Proposal/ Expression of Interest .............................................. 24
Request for Quote....................................................................................... 24
Corrigendum ............................................................................................... 24
Addendum .................................................................................................. 24
Open Bid..................................................................................................... 25

Chapter 4: Stages of Tendering Process ..................................26-51

Pre-tender Process ..................................................................................... 26

Preparation of Tender Documents ................................................... 27
Floating a Tender ............................................................................ 29
Tendering Process ...................................................................................... 30
Issue of Tender Documents............................................................. 31
Pre-bid Conference ......................................................................... 31
Receipt of Tender Quotations.......................................................... 32

xiv
 Sealing and Marking of Tenders ...................................................... 33
Evaluation Stage......................................................................................... 34
Opening and Tabulating Bids .......................................................... 34
Evaluation of Price .......................................................................... 36
Lack of Competition......................................................................... 37
Rejection of Tenders ....................................................................... 37
Scrutiny of Tender Documents and Attachments ............................. 38
Finalization of Tender ................................................................................. 42
Awarding a Work Order (WO) or Purchase Order (PO).................... 43
Securities and Co-laterals, Staggered Payments and
Liquidated Damages........................................................................ 45
Post Tendering Process .............................................................................. 48
General....................................................................................................... 48
Cancelation of Tender................................................................................. 49
Holiday Listing of an Empanelled Party ....................................................... 50

Chapter 5: E-Tendering ..............................................................52-59

Benefits of E-Tendering .............................................................................. 53

Challenges in E-Tendering.......................................................................... 53
CVC Guidelines .......................................................................................... 54

Chapter 6: About Internal Audit.................................................60-71

Factors Contributing to the Evolution of Internal Audit................................. 61

Methodology of Internal Audit...................................................................... 62
Standards on Internal Audit ............................................................. 62
Planning an Internal Audit ............................................................... 63
Terms of Internal Audit Engagement ............................................... 64
Knowledge of the Business ............................................................. 65
Audit Planning, Materiality and Sampling......................................... 65
Internal Control ............................................................................... 66

xv
 Consideration of Fraud in Internal Audit .......................................... 67
Internal Audit in an Information Technology Environment ................ 68
Overview of Compliance.................................................................. 69
Understanding of Laws and Regulations.......................................... 69

Chapter 7: Risk Based Internal Audit ........................................72-75

Chapter 8: Internal Audit Checklist ...........................................76-85

General....................................................................................................... 76
Planning the Purchase ................................................................................ 77
Documentation............................................................................................ 78
Inviting Tenders .......................................................................................... 80
Receiving Tenders ...................................................................................... 81
Evaluating Tenders ..................................................................................... 82
Review Committee ...................................................................................... 84
Accepting Successful Tender, Finalising Contract and
Unsuccessful Tenders................................................................................. 84

Chapter 9: Pitfalls in Tendering Process ..................................86-89

Appendices ............................................................................... 90-107

Appendix 1: CVC Guidelines on Adoption of Integrity Pact (IP) ............... 90

Appendix 2: CVC Guidelines for Selection and Employment

of Consultant............................................................................................. 106

xvi
 Chapter 1
General Aspects
Meaning
1.1 The word ‘Tender’ comes from the Latin word tendre which means to
offer. Historically, in past ages the merchant ships arrived at a port of call,
they would post a notice describing the goods they wished to buy or sell.
This notice was delivered ahead of the ship by a tender—a small boat—and
hence, the process is known as tendering.
1.2 Purchase/ Procurement is the acquisition of goods or services. It is
favorable that the goods/ services are appropriate and that they are procured
at the best possible cost to meet the needs of the purchaser in terms of
quality and quantity, time, and location. Corporations and public bodies often
define processes intended to promote fair and open competition for their
business while minimizing exposure to fraud and collusion.

Definition
1.3 Legal definition of a Tender:
(i) to present to another person an unconditional offer to enter into a
contract.
(ii) to present payment to another.
(iii) delivery, except that the recipient has the choice not to accept the
tender.
However, the act of tender completes the responsibility of the person making
the tender.
A formal offer, as:
a. Law An offer of money or service in payment of an obligation.
b. A written offer to contract goods or services at a specified cost or
rate; a bid.
2. Something, especially money, offered in payment.
Tender Function – a: an act or instance of tendering b: an unconditional
offer of payment or performance (as in discharge of an obligation) that is
coupled with a manifestation of willingness and ability to follow through (as
Technical Guide on Internal Audit of Tendering Process

by producing a check). Details are given in under legal principles in this

chapter.

Party to Float Tender

1.4 In India, any individual, partnership firm, Limited liability partnership,
corporate or a legal entity competent to contract can float a tender for goods
and services from manufacturers/ service providers/ suppliers who should
also be competent to contract and respond to tender invitation. Floating a
tender and/ or responding to a tender does not per-se amount to an offer and
acceptance.

Purpose of Tendering
1.5 A tender is floated to ensure that the process of sourcing materials,
services, etc. is conducted in a more transparent manner and value for
money is obtained. The main criteria of a tendering process are as follows:
(i) A structured approach ensuring transparency and fair play
(ii) Value for money
(iii) Accountability.
1.6 The guiding philosophy of tendering process is same all over the
world notwithstanding differences in methodology and nomenclature. This
Guide up is meant to explain the tendering process followed in India.
Keeping in mind the extensive level of computerization, in certain
government departments, armed forces, business houses the records,
registers etc, may be in softcopy format, etc.

Advantages and Weaknesses of Tendering

1.7 The advantages of tendering include:
(i) Transparency;
(ii) Better negotiations/ better price;
(iii) An audit trail;
(iv) Compliance with the organization’s policy;
(v) Fairness to all parties;
(vi) The encouragement of competition;

2
 General Aspects

(vii) The production of a written quotation, along with relevant supporting

information, against a prescribed need;
(viii) An easier comparison of offers.
1.8 The weaknesses of tendering include:
(i) It can be bureaucratic.
(ii) It may provide a barrier for SMEs.
(iii) It can be a triumph of process over substance.
(iv) It can inhibit flair, creativity and innovation.
(v) It can be expensive for all parties e.g., the time and resource in
preparation and evaluation of tenders.
(vi) It can inhibit negotiation.
(vii) Prices submitted are often inflated to allow room for negotiation.
(viii) Formation of cartels defeat the benefits of tendering.

Pre-Requisites for Tendering

1.9 A good specification is the only important factor in achieving value for
money. It is vital when inviting tenders. Purchasing and supply management
ensure the existence of an appropriate specification.
Generally, the specification should be about output or outcome.
1.10 There are various elements that could comprise an invitation to
tender (ITT) document such as:
(i) A covering letter providing instructions, e.g., labels to be used, return
date, contact names and numbers etc., with some background to the
requirement and also a statement that reads along the lines of "we
are not bound to accept any, or the lowest tender".
(ii) In case of a limited tender, a acknowledgement form - to be returned
stating whether or not the supplier is intending to submit a tender.
(iii) A cost, price and delivery schedule - to be completed with the price
and corresponding costs component e.g., information to assist whole
life costing along with the expected delivery or lead time.
(iv) A quality schedule - declaring which quality standards are met by the
supplier.

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Technical Guide on Internal Audit of Tendering Process

(v) A Guarantee/ parent company guarantee/ performance bond to be

completed as appropriate.
(vi) A list of information required on the supplier's company profile,
certificates pertaining to registration with various statutory bodies.
(vii) A request for the supplier's company accounts for the last three
years.
(viii) List of satisfied customers along with at least one reference.

Legal Principles Governing Tendering

1.11 A tender when accepted by both parties becomes a contract.
Contract
A contract is any agreement enforceable by law.
The proposal or offer when accepted is a promise, a promise and every set
of promises forming the consideration for each other is an agreement and an
agreement if made with free consent of parties competent to contract, for a
lawful consideration and with a lawful object is a contract.
Proposal or Offer
When one person signifies to another his willingness to do or to abstain from
doing anything, with a view to obtaining the assent of the other to such act or
abstinence, he is said to make a proposal or offer. In a sale or purchase by
tender, the tender signed by the bidders is proposal. The invitation to tender
and instructions to vendors do not constitute a proposal.
Offer versus Invitation to Treat
It is important to distinguish between an offer and an invitation to treat which,
taken alone, will not lead to a contract. An invitation to treat is no more than
an invitation to others to make an offer and cannot be accepted to make a
contract. In context of procurement, the issue of tender advertisements and
requests for tender (RFTs) is usually considered an invitation to treat, and a
tender is usually an offer.
Although the tender invitation or RFT may be a mere invitation to treat,
provisions in relevant codes of practice could result in the courts finding that
a tender gives rise to an binding obligation of good faith and fair dealing in
running the procurement process (requiring the inviter, for example, to give

4
 General Aspects

equal opportunity to vendors and evaluate the tenders as described in the

RFT documents.
Acceptance of the Proposal
When the person to whom the proposal is made signifies his assent thereto,
the proposal is said to be accepted. A proposal when accepted becomes a
promise. Accepting an offer creates contractual relations between the
parties. The acceptance is the act that completes the formation of the
contract. Before acceptance, there is usually only a revocable offer that binds
neither party. After acceptance, a contract is formed which binds both
parties. The acceptance must be absolute and unconditional, and must
indicate willingness to contract on the exact terms put by the proposer. An
acceptance that seeks to add or vary some terms of the offer is in law, no
acceptance at all. In this case, the purported acceptance is treated as a
counter offer, which can be accepted by the proposer.
Consideration
Contracts bargain move from the promisee contract where both for the other.
Consideration is defined as “something of value given or promised in return
for something of value given or promised.” Consideration cannot be:
(i) A mere moral obligation;
(ii) Past consideration;
(iii) Illusory; or
(iv) The performance or promise to perform either a public duty already
imposed by law on the promisor or a duty already imposed on the
promisor by an existing contract between the same promisor and
promisee.
The consideration may not be adequate but must be sufficient.
Where a standing offer agreement, such as a State Contracts Control Board
(SCCB) period panel contract for goods and services, is created following a
procurement process, there is usually no consideration paid by the inviter to
the vendor. Instead, the standing offer agreement is made binding by putting
it into the form of a deed.
Agreement
An agreement is a contract, enforceable by law when the following conditions
are satisfied.
(a) Competency of the parties

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Technical Guide on Internal Audit of Tendering Process

(b) Freedom of consent of both parties

(c) Lawfulness of consideration
(d) Lawfulness of object
(e) Time is essence of contract and time elapsed
A defect affecting any of these renders a contract in enforceable.
Withdrawal of an Offer or Proposal
A vendor firm, who is the proposer, may withdraw its offer at any time before
its acceptance, even though the firm might have offered to keep the offer
open for a specified period. It is equally open to the bidder to revise or
modify his offer before its acceptance. Such withdrawal, revision or
modification must reach the accepting authority before the date and time of
opening tender.
No legal obligations arise out of such withdrawal or revision or modification of
the offer. However, a vendor agrees to keep his offer open for a specified
period for a consideration, such offers cannot be withdrawn before the expiry
of the specified date. This would be so where earnest money is deposited by
the vendor in consideration of his being supplied the subsidiary contract and
withdrawal of offer by the vendor before the specified period would entitle the
purchaser to forfeit the earnest money.
Competency of Parties
1.12 Under law, any person who has attained majority and is of sound
mind or not debarred by law to which he is subject, may enter into contracts.
It, therefore, follows that minors and persons of unsound mind cannot enter
into contracts nor can insolvent person do so.
1.13 Categories of persons and bodies who are parties to the contract may
be broadly sub-divided under the following heads:
(a) Individuals: Individuals tender either in their own name or in the
name and style of their business. If the tender is signed by any
person other than the concerned individual, the authority of the
person signing the tender on behalf of another must be verified and a
proper power of attorney authorizing such person should be insisted
on. In case, a tender is submitted in a business name and if it is a
concern of an individual, the constitution of the business and the
capacity of the individual must appear on the face of the contract and

6
 General Aspects

the tender signed by the individual himself as proprietor or by his duly

authorized attorney.
(b) Partnership: A partnership firm is an association of two or more
individuals formed for the purpose of doing business jointly under a
business name. It should be noted that a partnership is not a legal
entity by itself, apart from the individuals constituting it. A partner is
the implied authority to bind the firm in a contract coming in the
purview of the usual business of the firm. The implied authority of a
partner, however, does not extend to enter into arbitration agreement
on behalf of the firm. While entering into a contract with partnership
firm care should be taken to verify the existence of consent of all the
partners to the arbitration agreement.
(c) Limited Companies: Companies are associations of individuals
registered under Companies Act in which the liability of the members
comprising the association is limited to the extent of the shares held
by them in such companies. The company, after its incorporation or
registration, is an artificial legal person who has an existence quite
distinct and separate from the members or shareholders comprising
the same. A company is not empowered to enter into a contract for
purposes not covered by its memorandum of association; any such
agreement in excess of power entered into the company is void and
cannot be enforced.
Therefore, in cases of doubt, the company must be asked to provide
its memorandum for verification or the position may be verified by an
inspection of the memorandum from the office of the Registrar of
Companies before entering into a contract. Normally, any one of the
Directors of the company is empowered to present the company.
Where tenders are signed by persons other than Directors or
authorized Managing Agents, it may be necessary to examine that he
person signing the tender is authorized by the company to enter into
contracts on its behalf.
(d) Corporations other than Limited Companies: Associations of
individuals incorporated under statutes, such as Trade Union Act,
Cooperative Societies Act and Societies Registration Act are also
artificial persons in the eye of law and are entitled to enter into such
contracts as are authorized by their memorandum of association. If
any contract has to be entered into with any one such corporations or
associations, the capacity of such associations to enter into contract

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Technical Guide on Internal Audit of Tendering Process

should be verified and also the authority of the person coming

representing Association.
(e) Joint Venture (JV)/ Consortiums: Joint ventures and consortiums
are generally engage
(f) in large tenders, a JV/ consortium agreement should be obtained. For
tenders submitted as Joint Venture/ Consortium, the turnover and
working capital of each of the partners of the Joint Venture/
Consortium is added to determine the Bidders minimum average
annual turnover. All the Partners of the Joint Venture/ Consortium are
liable jointly and severally for the execution of the contract in
accordance with the contract terms and a copy of the contract
entered into by the Joint Venture/ Consortium Partners having such a
provision is submitted with the Bid during the subsequent tendering.
A firm/ company is entitled to form only one joint venture/ consortium
under a tender.

Communication of an Offer or Proposal

1.14 The communication of a proposal is complete when it comes to the
knowledge of the person with whom it is made. A time is, generally, provided
in the tender forms for submission of the tender. Purchaser is not bound to
accept a tender, which is received beyond that time.

Communication of Acceptance
1.15 A date is invariably fixed in tender forms upto which tenders are open
for acceptance. A proposal or offer stands revoked by the lapse of time
prescribed in such offer for its acceptance. If, therefore, in case it is not
possible to decide a tender within the period of validity of the offer as
originally made, the consent of the vendor firm should be obtained to keep
the offer open for further period or periods. Communication of an acceptance
is complete as against the proposer, where it is put in the course of
transmission to him, so as to be out of the power of the acceptor, and it is
complete as against the acceptor when it comes to the knowledge of the
proposer. The medium of communication in government contracts is,
generally, by post and the acceptance is, therefore, complete as soon as it is
posted. So that there might be no possibility of a dispute regarding the date
of communication of acceptance, it should be sent to the correct address by
some authentic foolproof mode like registered post acknowledgement due,

8
 General Aspects

etc. Lately, however, e-tendering is being made mandatory for government

departments, agencies, PSUs, etc.

Discharge of Contracts
1.16 A contract is discharged and parties are normally freed from the
obligation of a contract by due performance of the terms of the contract. A
contract may also be discharged:
(a) By mutual agreement: If neither party has performed the contract,
no consideration is required for the release. If a party has performed
a part of the contract and has undergone expenses in arranging to
fulfill the contract, it is necessary for the parties to agree to a
reasonable value of the work done as consideration for the value.
(b) By breach: In case, a party to a contract breaks some stipulation in
the contract which goes to the root of transaction, or destroys the
foundation of the contract or prevents substantial performance of the
contract, it discharges the innocent party to proceed further with the
performance and entitles him to a right of action for damages and to
enforce the remedies for such breach as provided in the contract
itself. A breach of contract may, however, be waived.
(c) By refusal of a party to perform: On a promisor’s refusal to perform
the contract or repudiation thereof even before the arrival of the time
for performance, the promisee may at his option treat the repudiation
as an immediate breach putting an end to the contract for the future.
In such a case, the promisee has a right of immediate action for
damages.
(d) In a contract where there are reciprocal promises: If one party to
the contract prevents the other party from performing the contract,
the contract may be put to an end at the instance of the party so
prevented and the contract is thereby discharged.

CVC Guidelines
1.17 As per CVC Guidelines circulated vide letter No. 8 (1) (h)/ 98 (1)
dated. 18.11.98, it has been brought out that “the tenders are generally a
major source of corruption. In order to avoid corruption, a more transparent
and effective system must be introduced. As post tender negotiations are the
main source of corruption, post tender negotiations are banned with
immediate effect except in the case of negotiations with L-1 (i.e. Lowest

9
Technical Guide on Internal Audit of Tendering Process

Bidder)”. CVC has also issued guidelines on adoption of Integrity Pact (IP)
which is given in Appendix 1.
1.18 Efforts should be initiated to bring transparency and fairness in the
tendering process by the organization. This will enable the prospective
vendors to formulate competitive tenders with confidence. The following are
some important measures to achieve it and secure best value for money:
(a) The text of the tender document should be user-friendly, self-
contained, comprehensive, unambiguous, and relevant. The use of
terminology used in common parlance in the industry should be
preferred.
(b) The specifications of the required goods should be framed giving
sufficient details in such a manner that it is neither too elaborately
restrictive as to deter potential vendors or increase the cost of
purchase nor too vague to leave scope for sub-standard supply. The
specifications must meet the essential requirements of the user
department. Efforts should also be made to use standard
specifications, which are widely used in the industry.
(c) The tender document should clearly mention the eligibility criteria to
be met by the vendors, such as, minimum level of experience, past
performance, technical capability, manufacturing facilities, financial
position, ownership or any legal restriction, etc.
(d) Restrictions relating to qualifications in taking part in tender should
conform to policies and be judiciously chosen so as not to suppress
competition amongst potential vendors.
(e) The procedure for preparing and submitting the tenders; deadline for
submission of tenders; date, time and place of opening of tenders;
requirement of earnest money and performance security; parameters
for determining responsiveness of tenders; evaluating and ranking of
tenders and criteria for acceptance of tender and conclusion of
contract should be incorporated in the tender enquiry in clear terms.
(f) Tenders should be evaluated in terms of the criteria incorporated in
the tender document, based on which tenders have been received.
Any new condition, which was not incorporated in the tender
document, should not be brought into consideration while evaluating
the tenders.
(g) Sufficient time should be allowed to the vendors to prepare and
submit their tenders.

10
 General Aspects

(h) Suitable provisions should be kept in the tender document allowing

the vendors reasonable opportunity to question the tender conditions,
tendering process, and/ or rejection of its tender and the settlement of
disputes, if any, emanating from the resultant contract.
(i) It should be made clear in the tender document that vendors are not
permitted to alter or modify their tenders after expiry of the deadline
for receipt of tender till the date of validity of tenders and if they do
so, their earnest money will be forfeited.
(j) Negotiations with the vendors must be severely discouraged.
However, in exceptional circumstances, where price negotiations are
considered unavoidable, the same may be resorted to, but only with
the lowest evaluated responsive bidder (L1), and that too with the
approval of the competent authority, after duly recording the reasons
for such action.
(k) The name of the successful vendor to whom the contract is awarded
should be appropriately notified by the purchase organization for the
information of general public, including display at notice board,
periodical bulletins, website, etc.

11
 Chapter 2
Tendering – A Form of Procurement

2.1 Procurement (purchase) is the most essential part for any entity, both
manufacturing and service concern. It deals with acquisition of goods/
services. It is favorable that the goods/ services are appropriate and that they
are procured at the best possible cost to meet the needs of the purchaser in
terms of quality and quantity, time, and location. Enterprises define
processes intended to promote fair and open competition for their business
while minimizing exposure to fraud and collusion.
2.2 Every company should make its procurement plan. A procurement
plan refers to the planned approach of cost-effectively purchasing a
company's required supplies, taking into consideration several elements and
factors, such as, the timeline for procurement, the funding and budget, the
projected risks and opportunities, among others.
2.3 Planning for the most effective procurement systems should include
looking for suppliers not only on the basis of which would give the cheapest
and most inexpensive deals, but also the supplier that would be most reliable
and would offer the best quality within a reasonable price range on
sustainable basis.
2.4 Procurement can be broadly divided in following types:
Procurement

Procurement Procurement Procurement

of services of labour Others
of material

Vendor
Management

Scrap Sales

Maintenance
& admin
2.5 Depending on the nature of the required goods, the quantity and
value involved and the period of supply and frequency of purchase, the
 Tendering – A Form of Procurement

organization decides the appropriate mode of purchase. There are various

ways of procuring common in organizations:
(i) Purchase without a purchase order. It is, generally, followed for
petty purchases, where procurement value does not exceed a certain
predefined limit. The purchase order could be generated in system for
regularization. Normally, quotes are not called and negotiated. Orders
may be awarded based on previous order and negotiations, if any,
may be oral in nature. Materials required on urgency basis (though
not petty in value) can also be called categorized under this head.
However, care needs to be taken to check the repetitiveness of such
purchases.
(ii) Purchase with purchase order. This process starts with receipt of
requisition, calling of quotes, raising purchase order and ends with
receiving materials. Based on the amount is need to have the quotes
are called from number of persons and negotiations are done. There
a trail of communication with vendor available. Govt. departments/
agencies, railways, armed forces, PSUs have laid down delegation of
authority guidelines and Purchase Orders (POs) are placed following
such DOAs only through a tendering process. It is also called
traditional purchase process since it might not involve any system
intervention.

(iii) Rate contracts. Rate contracts are entered where the quantum of
purchase is small and its routine purchase. Normally, they are
entered for a fix period of one year and negotiated annually. At time
discounts are linked to quantum of purchase, needs to be taken care
especially, in rate contracts.

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Technical Guide on Internal Audit of Tendering Process

(iv) Tenders. Tender is followed normally for high value items, though not
necessarily, can be routine or not. The costs and time involved in
tender process must also be considered while selecting it as method
of purchase.
2.6 Following table illustrates the criteria that may be adopted by an
enterprise to decide the means of procurement:
Frequency Price of goods/services procured
of purchase Low price & quantum Medium price High price
Routine Purchase without PO, PO purchase Tender
Rate contracts
Non routine PO purchase PO purchase PO purchase,
Tender
The quantum of price what constitutes as low, medium and high is to be
decided by the enterprise depending on its size and nature of industry.
2.7 At many organizations, there are monetary limits guiding the demand
for goods should not be divided into smaller quantities for making piece meal
purchases for the sole purpose of avoiding the necessity of obtaining the
sanction of higher authority required with reference to the estimated value of
the total demand.
2.8 Timing of procurement is of utmost importance. It is essential that
tenders are finalized and contracts are awarded in a time bound manner
within original validity of the tender, without seeking further extension of
validity, to prevent cost over runs. Organizations should fix a reasonable time
for the bids to remain valid while issuing tender enquiries, keeping in view
the complexity of the tender, time required for processing the tender and
seeking the approval of the Competent Authority, etc., and to ensure the
finalization of tender within the stipulated original validity.
2.9 Delays which are not due to unforeseen circumstances should be
viewed seriously and prompt action should be initiated against those found
responsible for non-performance. Cases requiring extension of validity
should be rare and in the exceptional situations where the validity period is
sought to be extended, it should be imperative to bring on record in real time,
valid and logical grounds, justifying extension of the said validity.

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 Tendering – A Form of Procurement

CVC Guidelines
2.10 CVC has issued guidelines in its circular no. 007/CRD/008 dated
15/2/2008 regarding measures to curb the menace of counter feit and
refurbished IT Products. The relevant extract of the said circular is as
follows:
All buyers should insist on a signed undertaking from some authority of the
system OEM that would certify that all the components/parts/ assembly/
software used in the Desktops and Servers like Hard disk, Monitors, Memory
etc. were original/ new components/ parts/ assembly/ software, and that no
refurbished/ duplicate/ second hand components/ parts/ assembly/ software
were being used or would be used, so that the buying organizations are not
cheated and get the original equipment as ordered by them. Also one could
ask for ‘Factory Sealed Boxes’ with System OEM seal to ensure that the
contents have not been changed en route.
Following advisory checkpoints it is hoped shall help identify the fraudulent
practices that have come to notice and help guard against spurious and
refurbished/ duplicate/ second hand components/ parts/ assembly/ software
being received by purchasers and consignees who receive such goods and
may not have much technical knowledge.
1. CPU. Buyers are cautioned against buying IT Hardware with
remarked CPUs that are freely/ readily available in the market today.
Entry Level processors get Remarked/ Over clocked and sold as
high end processors. These CPUs, come disguised as higher clock
speed processors (e.g. a Celeron CPU can be remarked as a P4
CPU) while their real clock speed may be lower. Since Operating
System is loaded from CD bundled with Motherboard, the CD
contains image of configured OS. Hence information as seen in ‘My
Computer’ – System Properties’ shall give deceptive information. In
other words, a Celeron CPU remarked as a P4 CPU, shall be seen as
a P4 CPU only. Buyers should therefore, use various tool/ utilities like
the ‘CPU-Z’ Utility or the ‘sSpecNo.’ for ascertaining the real
parameters of the CPU. Utility like CPU-Z (approx. 1.3 MB size) are
available free on the web.
2. Hard Disk. IT Hardware with refurbished Hard Disks that are actually
2nd hand/repaired hard disks are readily available at low cost. In hard
disk drives, the factory repaired hard disk drives, which are mainly
used in the warranty replacements are substituted in the new

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Technical Guide on Internal Audit of Tendering Process

machines. Same is the case observed with floppy drive and Optical
disk drives many times. Most of the competent hard disk makers use
a sticker on such hard disks sold by them that clearly distinguishes
such hard disks from the fresh ones. There is No border or
Refurbished label on genuine new HDD. In addition to this, buyers
may also use HDTUNE_210 Utility. This utility shall return Hard Disk
Manufacturers’ Serial no. and Date of manufacturing of the Hard
Disk. These parameters can be used to cross-verify with the hard
disk vendor. Various Hard Disk vendors also put a date code on the
hard disk. A mismatch between this date and the one returned by
HDTUNE_210 Utility can also be viewed as tampering with the actual
information of the hard disk.
3. Monitors. IT Hardware with refurbished Monitors that are actually
2nd hand/repaired monitors are given a “new look” by changing the
body, with internal components remaining “old/ repaired”. These CRT
monitors are usually discarded from developed countries like US and
Europe. There are also B Grade (New but Low Quality) CRT Monitors
used in place of new monitors. Many times these can be
distinguished by opening the cabinet body and noticing that the label
on the tube does not carry various certifications and there are scratch
marks on the tube. While ‘Genuine’ Picture Tubes have all mandatory
Certifications, ‘Counterfeit’ Picture Tubes would not have these
certifications. Certification gives an assurance of Reliability.
In ‘B’ Grade LCD Monitors, panels used are B grade in which the
number of spots may be higher, response time & brightness of lower
specs than what is stated. Above monitors are all available at low
cost. The “Signed Undertaking” as suggested shall serve as a
deterrent and as a safeguard to ensure that bidders are not fleecing
them by supplying such monitors.
4. Operating System. Purchasers should check the IT Hardware
supplied (randomly selected IT Hardware) for Certificate of
Authenticity (COA) pasted on the PC for product serial number and
OEM’s/ Supplier’s name to be printed on it. In Operating systems,
pirated OS software with fake Certificates of Authenticity is used by
some suppliers to cut costs. They look as good as the real ones. In
PCs, counterfeiters buy legitimate software and copy the box design
and packaging. Using sophisticated and expensive copiers, many
copies of illegal CDs are created in a day. Purchasers should guard

16
 Tendering – A Form of Procurement

against buying IT Hardware with pirated copies of Operating

Systems. Such Operating Systems, though, available at low prices,
do not have the updated patches and security features that help
safeguarding the PC and also improve its lifespan. Purchasers,
therefore, may use the standard testing procedures (randomly on
randomly selected IT Hardware) available on the following URL for
ascertaining the in authenticity of the operating system installed on
their PC. http://www.microsoft.com/resources/howtotell/ww/windows/
default.mspx. microsoft provides an inbuilt tool to diagnose the
“Genuineness of its Operating System”. One could go to ‘My
Documents’, and ‘Help’, from where one shall get step by step
instructions to find out whether the windows installed is genuine.
http://www.microsoft.com/resources/howtotell/ww/windows/default.ms
px
5. Mechanical Keyboards. Fake mechanical keyboards that are
partially mechanical, with only the key plunger being that of a real
mechanical keyboard and rest of the keyboard features remaining the
same as those of membrane keyboard are being passed on as true
mechanical keyboards. While these keyboards are available at low
prices, they do not offer the robustness and long key-stroke life
expected of a real mechanical keyboard. Real Mechanical Keyboards
are expected to have Keystroke life of 50 Million as against 10 million
for Membrane and Semi-Mechanical Keyboards. In case of bulk
orders, it is recommended to physically examine a few keyboards for
their construct to ascertain the genuineness of their being real
mechanical keyboards.
6. Low Quality Memory Module. Memory chips are remarked or
downgraded wafers are plastic packed under unknown brands or
remarked with names of well-known brands. Such memory modules
have lower performance levels. It is better to go in for proven reputed
brands available in the market.
7. Fraudulently Marked SMPS. In power supplies, wrong marking of
the wattage is done. The power supplies do not carry all required
certifications. While ‘Genuine’ Power supplies carry all mandatory
certifications, in counterfeit Power supplies these certifications shall
be found missing. Further Short circuit & over voltage protection
circuitry could be missing in counterfeit Power Supply to reduce cost.

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Technical Guide on Internal Audit of Tendering Process

8. Counterfeited Consumables. Counterfeited consumables such as

printer cartridges etc. are used which are refilled with ink of poor
quality leading to poor performance and clogging, smudging in
printers etc. It is advisable to buy such consumables from OEM
authorized suppliers or distributors to ensure quality and longevity of
the printer equipment.

18
 Chapter 3
Types of Tender

Types of Tender
3.1 Taking into account various factors like technical complexities,
availability/ suitability of services/ materials/ products, monetary implications,
gestation period, validity period of contracts, distribution of risk, urgency of
completion, economy and overall cost of operation etc., the type of tender to
be floated is decided. Depending on the nature, complexity, value and scope,
a tender may be a single bid, two-bid or even a multi-bid tender.
Respondents are screened for eligibility through evaluation of credential and/
or technical bids. Thereafter, financial bids are opened.
3.2 Though nomenclature may vary from industry to industry, tenders
may broadly be classified as:
(i) Global Tender
(i) Public Tender, Deemed Public Tender
(ii) Limited, CAPEX/ Regional/Zonal Tender
(iii) Single Tender or Tender on Nomination Basis
(iv) Lump sum Turnkey Tender.
(v) Tender on LOT system
(vi) Tender on Percentage Basis
(vii) E-Tender
(viii) International Competitive Bidding (ICB)/ National Competitive Bidding
(NCB)
(ix) Request for Proposal (RFD)/ Expression of Interest
(x) Request for Quote (RFQ)
(xi) Corrigendum
(xii) Addendum
(xiii) Open Bid
Technical Guide on Internal Audit of Tendering Process

Global Tender
3.3 A global tender is usually floated when:
(a) The technology/ service/ product/ material is not available in the
country or it makes economic sense to import rather than produce
indigenously.
(b) There are different technology platforms that can be evaluated
against the requirements.
(c) There is a potential of technology transfer.
(d) The scale of procurement justifies the cost of tendering in terms of
expenditure, social/ political/ economical/ security exigencies.
3.4 Such tenders are subject to import and other relevant policies of the
government in force. Though most likely an open tender, a global tender in
specific circumstances may be limited in nature as well. The tender notice
covers all such conditionality and per-requisites.
Public Tender (PT), Deemed Public Tender
3.5 The terminology means that it is a tender open to public for
participation subject to the terms and conditions of the tender. The term
“public” encompasses individuals and enterprises alike. In Open Tender
anyone can participate. The participant has to ensure that they fulfill the
minimum pre-qualification criteria specified in the tender document to qualify.
If they do not meet the pre-qualification criteria, their bid will be rejected and
they will lose the document fees they have paid. It is necessary that Open
Tender is advertised in newspaper. The Lowest Bidder (L1), generally, wins
the contract.
3.6 Depending on the requirements, a public tender may be a single bid,
a two-bid or even a multi-bid tender. For purchasing capital equipment, high
value plant, machinery, etc. of complex and technical nature, tender enquiry
document, complete in all respects, may be issued as usual. However, the
vendors should be asked to bifurcate their quotation in two parts. Such
tender notices usually specify eligibility parameters.
3.7 Sometimes from earlier experience, an enterprise may have an
adequate data of entities capable of execution. In such cases, instead of
floating a fresh public tender, an enterprise may ask for quotations from
empanelled entities. It is usually done to economize expenses and time also
at same time ensuring transparency, quality and implementation. Enterprises

20
 Types of Tender

that resort to deemed public tenders usually have a sound tendering system
and procedure in place to take care of charges of favoritism and other legal
implications.
Limited Tender (LT), CAPEX/ Regional/ Zonal Tender
3.8 Where there is no time or need to float a public tender or it is not
proper to float a single tender and at the same time the enterprise has a pool
of tested material/ service providers, a limited tender is called. A deemed
public tender is usually floated as a sequel to a PT; it is not to be confused
with an LT. An LT is floated for repetitive jobs not involving high
technological requirements, usually not of a huge monetary implication but
requiring the vendors to have requisite experience of working with/ for the
enterprise. An LT may also be floated to vendors short-listed and
empanelled. Enterprises should have approved policies and procedures for
calling an LT. A minimum number of vendors are usually prescribed for
floating an LT. Care needs to be exercised to prevent impersonation in LTs.
3.9 A variant of an LT may be in the form of a CAPEX/ Regional/ Zonal
tender. Nomenclature may vary from industry to industry or in enterprises in
the same industry. It may be necessary to roll out projects/ facilities involving
standard design, technology etc., in different regions/ zones, etc., Capital
budgets are usually centrally controlled, allocated and monitored. Job/
material requirements are standardized, vendors/ service providers are short-
listed through an internal process of due diligence. Work schedules,
departmental estimates are also standardized. In such cases. instead of
going through a PT, short-listed vendors are asked to submit their quotes
which are evaluated against departmental estimates.
3.10 For the sake of transparency, an enterprise should have a laid down
procedure for short-listing of vendors, exclusion from or inclusion in such
lists.
Single Tender (ST) or Tender on Nomination Basis
3.11 Obtaining quotation by issuing single tender enquiry to a selected
source amounts to purchase without generating competition. Therefore, this
mode of purchase should be resorted to only in unavoidable situations.
Single Tender, whenever possible should be avoided. However, in cases of
emergencies, proprietary/ specialized jobs, absence of other vendors for
specialized job/ specific material, jobs of small value/ field offices, locations,
etc. a single tender is floated. Concurring and approving authority should be
careful with the justification while concurring and/ or approving. Proprietary

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Technical Guide on Internal Audit of Tendering Process

Article Certificate needs to be collected while purchasing on single tender

basis. Purchase through STI may be adopted when:
(i) It is in the knowledge of the user department that only a particular
firm is the manufacturer of the required goods. The reason for arriving
to this conclusion is to be recorded and approval of the competent
authority obtained.
(ii) In a case of emergency, the required goods are necessarily to be
purchased from a particular source subject to the reason for such
decision being recorded and approval of the competent authority
obtained.
(iii) For standardization of machinery or components or spare parts to be
compatible to the existing sets of machinery/ equipment (on the
advice of a competent technical expert and approved by the
competent authority), the required goods are to be purchased only
from a selected firm.
Lump Sum Turnkey Tender (LSTT)
3.12 Large projects, like, construction of dams, highways, airports, etc.
involve a long gestation period, synergy of intricate technologies, huge
capital expenditure over a period of time while guarding against time and
cost overruns. Established service providers with requisite expertise,
resources and market standing are invited together to participate in such
tenders for execution and delivery on a turnkey basis. LSTKs are usually
global or public tenders. In exceptional cases, it may be an LT too. This is a
way of outsourcing the different components of deliverables in giant projects.
The major service provider chosen at the end of selection process award
sub-contracts, co-ordinate all activities, deliver and gets compensated as per
the terms and conditions of the contract.
Tender on LOT System
3.13 In some cases, such as, large transportation, building, material
procurement contracts, job may have to be awarded to more than one vendor
at a time. Geographical spread, capacity constraint, spreading of risk, QC
facilities, etc. may be some of the reasons for award of jobs on lot basis.
Entities awarding such tenders have their own internal procedures and
control system for awarding such tenders.

22
 Types of Tender

Tender on Percentage Basis

3.14 At times, tenders on unit rate basis for a number of items are to be
floated. Tenders are evaluated by comparing the total of quoted amounts
with departmental estimate. These tenders may be PT or LT.
Experience tells that at times rates quoted by vendors may differ
significantly. It may so happen that the overall lowest bidder might quote
unusually high rates against certain items. In such case, acceptance of such
bids becomes tricky, open to audit comments or even vigilance reports.
3.15 To avoid such situation, rates are furnished in the tender on the basis
of departmental estimates. Vendors are required to quote in percentage plus
or minus with respect to the estimates. Abnormal variations are avoided.
Chances of change in status of vendors due to change in quantity of any item
becomes less. It makes preparation of comparative statements, work orders,
revision, if any, required easier.
E – Tender
3.16 Purchase of goods through electronic mode of interface with vendors
and IT enabled management of the entire procurement process (notice
inviting tenders, supply of tender documents, receipt of bids, evaluation of
bids, award of contract, and execution of contract through systematic
enforcement of its various clauses and tracking of claims, counter-claims and
payments) is gradually gaining popularity. It helps to cut down transaction
costs and improve efficiency and transparency.
3.17 Internal auditor should ensure secure IT platform addressing
concerns, like encryption/ decryption of bids, digital signatures, secure
payment gateways, date/ time stamp for activities, access control, etc. The
system should be secure, capable of maintaining complete confidentiality at
appropriate stages of the bidding process.
3.18 However, since all the tendering firms don’t have the facility of
transmitting their quotations through e-mail, companies allow the receipt of
quotations through hard copies as well as by e-mail. The closing date and
time for receipt of tenders should be identical for both types of tenders.
3.19 It is, however, to be kept in mind that the entity floating a tender and
awarding a tender remains liable and responsible as the principal employer.
Hence, scrutiny of the legalities in tenders is crucial and an internal auditor
should be aware of his responsibilities in this regard.

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Technical Guide on Internal Audit of Tendering Process

International Competitive Bidding (ICB)/ National

Competitive Bidding (NCB)
3.20 International Competitive Bidding (ICB) is a bidding in which
companies from outside India can also participate. National Competitive
Bidding (NCB) which restricts right to participate only to Indian bidders.
Request from Proposal/ Expression of Interest
3.21 In Request from Proposal (RFP), a company is supposed to submit
only the Technical proposal. Indicative price bid can also be invited, if so,
required by Buyers. Once RFP round is over, RFQ or Request for Quote can
be invited from shortlisted Bidders.
3.22 Another purpose of RFQ is to understand the current technology
available in the market. For e.g. if a new power plant is to be built, the
government can float an RFP stating, that it wants to build a 1000 MW power
plant, different Bidder will submit their response stating that they can build
either Thermal, Nuclear, Solar, Fuel, Coal based plant. On the basis of
response from different bidders, buyer will select either of the technology and
then float a fresh tender or just invite bids from pre-qualified bidders.
Request for Quote
3.23 In RFQ, a company has to submit their best offer and on the basis of
this decision, the contract is awarded. For example, if someone wants to buy
1 Window AC, only RFQ is floated because no Technical pre-qualification is
required as it is a standard product.
Corrigendum
3.24 If any change/ correction is to be made in Tender Notice or Tender
Document, the same can be made by issuance of corrigendum. Please note
that Corrigendum can only be issued before the due date and time of tender
submission expires. Against a tender, any number of corrigenda can be
issued. Corrigendum is issued after pre-bid meeting to post clarifications
Addendum
3.25 If any new content is to be incorporated in Tender Document, the
same is done by means of issuance of Addendum. However, in many
Tenders, it is also done by issuing a corrigendum notice.

24
 Types of Tender

Open Bid
3.26 All the tendering vendors would be invited to the e-commerce website
at the same time, to post the bid, wherein no other vendor will know the bid
of others vendors because of technology. The system itself throws out the
specifications as to which tender is chosen based on the price and other
parameters.

25
 Chapter 4
Stages of Tendering Process

4.1 The Tendering Process covers following steps:

(i) Preparation of tender documents
(ii) Floating a tender
(iii) Issue of tender documents
(iv) Pre-bid conference
(v) Receipt of bids Tender Quotations
(vi) Scaling and making of tender
(vii) Opening and tabulating bids
(viii) Evaluation of price
(ix) Lack of competition
(x) Rejection of Tender
(xi) Scrutiny of tender documents and attachments
(xii) Awarding a Work Order (WO) or a Purchase Order (PO)
(xiii) Securities and Co-laterals, Staggered payments and Liquidated
Damages
(xiv) Final Settlement

Pre-Tender Process
4.2 One of the most important parts of pre-tender process is appointment
of selection team. Selection team should consist of independent members
from diverse fields concerning the decision. Tendering method is finalized at
this stage. All specifications concerning the decision are finalized and key
selection criteria are also decided. As part of the preparation work, and
before any tender is advertised, the procuring department requires a realistic
estimate of the cost of the expected to incur and also check whether the
same is within budgeted limits. Decision-making criteria needs to be
documented, must be clear, justifiable and objective (with a written record)
with no room for discretion at any time, especially, in the evaluation and
comparison of the bids.
 Stages of Tendering Process

Preparation of Tender Documents

4.3 A tender involves expenditure. Now-a-days many of the techno-
commercial enterprises are run on RDBMS platforms, like, SAP. Budgetary
provision and cash outlay become a pre-requisite to enable a tendering
process through the system to be taken forward. Tenders for items of capital
nature are usually large and requires sanction in capital budget and
adequate provision for cash outlay for the period starting with floating of a
tender to conclusion of procurement and final settlement. Tenders for items
of revenue nature, need revenue budget approvals and cash outlay for the
relevant revenue time frame.
4.4 A tender document is the basic document in the tendering process,
defining all the requirements, rights and liabilities, legalities, deliverables,
time limit, damages and payment process, etc. Utmost care is to be taken in
preparation of tender documents. A tender may comprise of:
(i) An administrative section: An administrative section may inter alia
include:
(a) the exclusion criteria
(b) the eligibility criteria again based on
• compliance of the statutory requirements and production
of documentary evidence.
• the technical and/or professional capacity criteria..
• the financial, economic capacity criteria.
(c) An instruction that all the pages of tender document should be
read and understood and require to be signed and stamped to
that effect.
(d) No white ink is to be used, any correction is to be neatly struck
off, clearly re-written and countersigned.
A notification that tenders must be submitted within the time and date
specified. Any tender submitted late or in an open envelope will be
rejected.
(ii) A technical section: A technical section contains:
(a) The technical specifications of the work to be done.
(b) The technical specification of the materials to be procured.
(c) Documentary proof the technical capability to deliver.

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Technical Guide on Internal Audit of Tendering Process

(iii) A financial section: The financial section specifies:

(a) The financial implication and structure of the tender.
(b) Payment schedules.
(c) Clauses relating to damages and penalties.
(d) Documentary proof required to establish financial capacity.
4.5 A draft tender document should, therefore, be scrutinized by
concerned functions and vetted by legal department or counsel. A tender
once floated, responded and the offer accepted becomes a contractual
obligation between both the parties. Issuing a corrigendum after floating a
tender is a sloppy business practice - better avoided.
4.6 A tender document could consist of the following:
(i) Index of contents with page numbers. There may be different
chapters but all the pages should be serially numbered.
(ii) Notification/ letter inviting the tender.
(iii) List of pre-qualification criteria.
(iv) Format of letter requesting issue of tender documents.
(v) General conditions of work/ service/ purchase requirements.
(vi) Requirement and format of co-laterals, like, security deposit (SD),
earnest money deposit (EMD), bank guarantee (BG), etc.
(vii) Work schedule, purchase schedule.
(viii) Technical specifications.
(ix) Time schedule.
(x) Clauses related to liquidated damages for delay, defect, non-
performance, etc.
(xi) General and/ or special instruction to the respondent.
(xii) Agreed terms and conditions (usually in a questionnaire form).
(xiii) Price/.billing/.payment schedule format.
(xiv) Any other special conditions.
(xv) List of Board of Directors or web address link.
(xvi) A format of declaration by a vendor that he had read and understood
the tender requirements and conditions.
(This is an indicative, not an exhaustive list)

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 Stages of Tendering Process

4.7 Government departments, PSUs, other corporate usually have printed

tender documents/ booklets that have been finalized after collective
consultation, bear approval of competent authority and have been
standardized. Any deviation in content and tendering methodology introduced
by related function should be concurred by finance and vetted by legal
department or counsel. A tender to be floated should have the approval of
the HOD of the related function.
4.8 Concept notes, observations, replies, concurrence, approval must be
serially numbered. Each page of the concept note should be signed by the
initiator. If a file has separate sections, volumes, these are also to be
numbered separately and serially with appropriate prefixes/ suffixes as
required. A top sheet called the movement sheet traces the journey of the
file. A repeat order proposal should come as a part of the original order.

Floating a Tender
4.9 A notice inviting tenders (NIT) needs to be published in leading daily
newspapers, put on the web or given to potential respondents. Depending on
the type of tender, the notice may take different forms.
For example, in case of petty office jobs, a notice may be pasted on the
office notice board. For a single tender the vendor can be called and handed
over the tender papers.
4.10 For an Limited Tender, documents can be sent by registered post to
empanelled vendors. Tender papers are to be sent to all nominated vendors
through the same medium and at the same time. A register or list is
maintained. If tender documents are physically handed over, then signed and
stamped acknowledgement is to be taken. A list of authorized signatories of
empanelled vendors is required to be maintained. If sent by registered post/
courier, postal/ courier receipts with date and time are usually pasted against
the name and address of each addressee. In other words, irrefutable
documentary evidence of dispatch of tender documents to each vendor with
same time allowance is to be maintained.
4.11 In case of a Public Tender, advertisement has to be given in at least
two widely circulated daily newspapers, one of which should be in English
and the other should be in the local language. In case of all India Public
Tender, advertisements are given in all major newspapers covering the
country. Now-a-days, tenders are posted on the department or company
website. The process of e-tendering is different from tendering through
tender papers.

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Each and all respondent must be, in a visible and documented manner, given
equal opportunity to participate.
4.12 A tender notice should specify the following particulars:
(i) Description of the work to be awarded or the material to be procured.
(ii) Cost of tender papers payable either in cash or by an account payee
banker’s cheque/ demand draft.
(iii) Place, date, time of selling tender papers.
(iv) Place, date, time for submission of tender papers.
(v) Amount of earnest money to be deposited along with tender papers.
(vi) Pre-qualification criteria, if any.
(vii) List of other documents to be submitted with tender papers. Usually,
photocopies of the documents are asked along with originals to verify,
at the time of opening of tenders.
(viii) Office/ authority to whom tender is to be submitted.
(ix) An instruction that the tender papers along with attachments/
enclosures are to be submitted in a sealed envelope clearly super
scribed with tender name, number and date, time of opening of
tender. Envelopes are either supplied with tender papers or size,
type, etc. of envelopes are specified. Technical and price bids may be
required to be submitted in different sealed envelopes and all such
envelopes are to put in another sealed envelope.
(x) Tender notice usually contains a provision of a right to reject any
tender or any part thereof so received without assigning any reason.
However, except in case of petty tenders, such a disclaimer may not
lend any meaningful protection from complaints from unsuccessful
vendors. With the introduction of RTI, in particular, it is very much
unadvisable to modify, withdraw or scrap tenders once floated and
more so after submission.
(This is an indicative, not an exhaustive list)

Tendering Process
4.13 Here the decision is taken about the advertising date, tender validity
period, closing, venue, date and time. Tender is advertised and tenders are
received. Controls need to be evaluated on process of receipt of tender at
the designated office location.

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Issue of Tender Documents

4.14 Tender documents are, generally, issued against a tender fee to be
deposited by vendors desirous of participating in a tender either in cash or by
an account payee banker’s cheque/ demand draft. A cash receipt is to be
issued to the payer. A register must be maintained by department concerned
listing out the details of the prospective vendors that have been issued
tender papers. Some companies exempt Government departments,
agencies, PSUs, small scale industries registered with NSIC from tender
fees.

Pre-bid conference
4.15 In case of large and complicated tenders, a pre-bid conference may be
held. For Limited Tenders and Single Tenders holding, a pre-bid conference
may not be difficult as the details of empanelled vendors are known and they
can be called. In case of global tenders, however, it is not easy. So,
wherever a need for a pre-bid conference is felt, details of venue, date, time,
etc. must be specifically mentioned in the tender documents. Some of the
benefits of such a pre-bid conference are as follows:
(i) All techno-commercial issues can be discussed and clarified.
(ii) If there is a possibility that vendors may come up with counter
conditions either or both on commercial and technical matters, a pre-
bid conference helps in sorting out the issues and putting in
disclaimer clauses in the bid documents to the effect that any
counter condition or deviation will render a quotation to be summarily
rejected.
(iii) Sometimes the entity floating a tender may be aware of its
requirements but may not be fully knowledgeable about different and
emerging technologies. In such a scenario, it may not be possible to
specifically or comprehensively define the technicalities that may
leave a scope of ambiguity. It may also be possible that the vendors
are more knowledgeable about the emerging or state of the art
technologies and processes which may differ from one to another. In
such a scenario, it is always advisable to hold a pre-bid conference.
On one hand, the entity floating the tender may get a better insight
into the technologies best suited for their purpose, may introduce
suitable amendments in the tender documents with unanimous
agreement in writing of the participants in such a meeting and such

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an interactive exercise helps in creating a level playing field for all the
participants.
(iv) A reasonable time interval is to be allowed between the last date of
sale of tender documents and the pre-bid conference.
(v) Minutes of the conference are to be prepared and got signed by all
participants with date and time.
(vi) If necessary revised date and time of submission and opening of
tenders are to be decided and intimated in writing to all participants
under acknowledgement.
(vii) Vendors absent from such a conference are to be notified in writing or
through mail in similar lines.
(viii) All vendors are to be categorically advised that except for the
deviations, etc. agreed to in the conference no other deviations will
be allowed; otherwise bids will get summarily rejected.
(ix) No discussion on NIT qualifying clauses is to be held in a pre-bid
conference.

Receipt of Tender Quotations

4.16 The Notice Inviting Tender (NIT) must specify the place, date, time
limit of the quotations to be submitted. In case of e-tendering, the place is
substituted by an email address. However, in case of e-tendering, a specified
number of hard copies of quotations and supporting papers are also required
to be submitted.
There should be no confusion in receipt of quotations so that nobody can
complain of partiality or obstruction.
4.17 A locked and sealed box or trunk with a hatch/ aperture for dropping
tenders is kept at a prominent place of the office of the designated officer. If
tender papers are too bulky, a separate room with suitably restricted access
may be arranged. The empty box/ trunk/ room should be inspected before it
is put to use. It is to be clearly marked with the details of the tender
concerned. A double locking system requiring simultaneous use of two keys
should be used. The keys to the box are kept in a closed and sealed cover
with the designated officer till the opening time.
4.18 Tender papers received by post within notified time limit should be
immediately acknowledged, date and time of receipt recorded and the tender

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papers dropped in the tender box. The opening/ aperture in the tender box/
room is to be immediately sealed/ closed once the notified time limit is over.
4.19 To avoid confusion, counter claims, tender boxes, tender rooms and
tender dropping and opening processes are monitored through CCTVs in
certain organizations. The video recordings are preserved till conclusion of
tendering process and completion of the project.
4.20 It is the responsibility of the concerned department to build up a
tender file starting with departmental/ Head Office/ Corporate Office
approval, as the case may be, advertisements in newspapers, proof of
dispatch of tender documents, receipt of bids and all other related papers
and correspondence.
4.21 There should not be more than ½ an hour time gap between the time
limit of submission of tender papers and opening of the tender. A tender
opening committee (TOC) is nominated to oversee the tender opening
process. A tender box should be inspected by TOC to ensure that the seal/
lock is intact before opening it.
4.22 In case, the designated tender opening day happens to be a closed
day, the tender should be opened at the same place and time on the next
working day. If possible, a notice/mail to this effect may be given to
concerned vendors. Such postponements need to be brought to the notice of
competent authority and yet approved by them.
A tender is to be opened in the presence of all the respondents.

Sealing and Marking of Tenders

4.23 The tender document is to indicate the total number of tender sets
(e.g., in duplicate or in triplicate, etc.) required to be submitted. The vendor is
to seal the original and each copy of the tender in separate envelopes, duly
marking the same as “original”, “duplicate” and so on and also putting the
address of the purchase office and the tender reference number on the
envelopes. Further, the sentence ‘’NOT TO BE OPENED” before (due date
and time of tender opening) are also to be put on these envelopes. The inner
envelopes are then to be put in a bigger outer envelope, which will also be
duly sealed marked, etc. as above. If the outer envelope is not sealed and
marked properly as above, the purchaser will not assume any responsibility
for its misplacement, premature opening, late opening, etc. All the above
instructions are to be suitably incorporated in the tender documents.

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Evaluation Stage
4.24 Here assessment of tenders is carried out for conformance with
tender requirements and reject late or non-conforming tenders. key selection
criteria and agreed weights to conforming tenders are applied to identify the
best value tender as the preferred tender.

Opening and Tabulating Bids

4.25 In government departments and PSUs, by practice, a tender opening
committee (TOC) is nominated to open the tenders submitted within the
stipulated date and time. Time and date of opening a tender, unless already
extended with due notification to all concerned and with approval of
competent authority, must be maintained without any exception to avoid
complications. Any deviation for any reason whatsoever must be got
approved by competent authority and notified to all concerned. TOC usually
comprises of an officer from function and one officer from finance.
4.26 Function and responsibility of a TOC may, generally, be described as
below:
(i) To be physically present during the time of closing of the tender to
ensure that all tenders submitted within the time limit have been
dropped in the tender box and no tender received thereafter was
allowed to be dropped in the tender box.
(ii) Any tender envelope received after the time limit should be clearly
marked as either “Late” or “Delayed” and the time and date of receipt
should be written on the envelope and tender register. Those tenders
that have been posted/ dispatched before the time limit but received
after the time limit are called “delayed” tenders. Tenders posted/
dispatched and consequently received after time limit is called “late”
tenders. A TOC should acknowledge receipt of such delayed/ late
tender’s record the time and date in tender register but cannot allow
such tenders to participate.
(iii) Once submission of tenders is closed, TOC must check the lock and
opening/ aperture of the tender box/ room to satisfy them that those
are intact and not tampered with, and record it in the tender register.
Any suspicious circumstances must be immediately noted, reported
and tender opening is postponed for further instruction from
competent authority.

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(iv) To verify from the tender register that quotations have been received
only from vendors who purchased tender documents.
(v) The seals of the covers are to be checked for any sign of tampering.
Once satisfied, one by one the covers are to be slit open keeping the
seals intact. Unsealed covers are liable to be rejected forthwith.
(vi) The covers are marked with serial numbers. For example 10
quotations have been received. The covers are to be marked as 1/10,
2/10 and so on. All the covers must be signed by each member of
TOC with date and time. Covers are to be retained with respective
tender papers.
(vii) Each page of tender must be marked with the same serial number on
its cover and jointly signed with date and time by TOC.
(viii) In case of a two or multiple bid tender, TOC is to fill out the technical
particulars in the tender evaluation sheet first.
(ix) TOC should record whether all the prescribed attachments have been
received.
(x) Wherever necessary TOC is to verify the credentials with the originals
like PAN card, NOC from department of environment, explosives,
registration with commercial tax authorities, regional provident fund
commissioner, trade license etc.
(xi) Security deposit should be immediately entered in cash book and
deposited in bank; a cash receipt is to be prepared and given to
vendor. In case of EMD, it can be either en-cashed or the instruments
can be held till award of tender and then returned to unsuccessful
vendors. Records are to be generated and maintained at each stage.
(xii) After selection of technically eligible parties in a two or multi-bid
tender or at the time of opening in a single bid tender, the rates
quoted against each work order or purchase order item are to be
filled in the tender evaluation sheet.
(xiii) TOC is to note and/ or authenticate any difference in rates quoted in
words and figures, over-writing, cutting, use of white fluid, missing
signature, submission of security deposit, earnest money deposit etc.
in the tender papers.
(xiv) TOC should note and record that each bidder has given a declaration
that it has not been put on holiday list.

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(xv) Total quoted amount in each tender is to be countersigned by all

members of TOC.
(xvi) For each tender, TOC is to populate the evaluation sheet with rates
quoted against each item and the total quoted. Each page of the
evaluation sheet is to be signed by members of TOC with date and
time. In case of a separate price bid cover, it may not be possible for
TOC to fill up the rates. But that fact is to be noted by TOC.
(xvii) In case of two or multi-bid tenders, TOC is to note that the covers of
the subsequent bids are not opened. After technical evaluation, when
the subsequent covers are to be opened, the same procedure is to be
followed.
(xviii) Safe custody of tender papers is the responsibility of TOC till the
entire bunch is handed over to Tender Consideration Committee
(TCC).
(xix) TOC certification of compliance with tender opening and eligibility
criteria is of crucial importance. Hence, TOC must pay attention to
minute details, record the findings faithfully without any bias, maintain
confidentiality and hand over tender papers/ documents received to
TCC and recieve acknowledgement.

Evaluation of Price
4.27 The broad guidelines for judging the reasonableness of price are as
under:
(i) Last purchase price of same (or, in its absence, similar) goods.
(ii) Current market price of same (or, in its absence, similar) goods.
(iii) Price of raw materials, which go into the production of the goods.
(iv) Receipt of competitive offers from different sources.
(v) Quantity involved.
(vi) Terms of delivery.
(vii) Period of delivery.
(viii) Cost analysis (material cost, production cost, over-heads, profit
margin).
NB: Price paid in an emergency purchase or purchase price of goods offered
by a firm through ‘distress sale’ (i.e., when the firm clears its excess stock at

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 Stages of Tendering Process

throw away prices to avoid further inventory carrying cost, etc.) are not
accurate guidelines for future use.

Lack of Competition
4.28 Sometimes, the purchase organization may not receive sufficient
number of tenders. A situation may also arise where, after analyzing the
tenders, the purchase organization ends up with one responsive vendor. In
such situations, the purchase organization is first to check whether, while
floating/ issuing the tender enquiry, all necessary requirements, like,
standard tender enquiry conditions, industry friendly specification, wide
publicity, sufficient time for formulation of tenders, etc. were fulfilled. If not,
the tender is to be re-issued/ re-floated after rectifying the deficiencies.
However, if after scrutiny, it is found that all such aspects were fully taken
care of and in spite of that the purchaser ends up with one responsive tender
only, then contract may be placed on that vendor provided the quoted price is
reasonable. CVC in its Circular no. 4/3/07 has explained on negotiations of
contract with L1. It has emphasized that post tender negotiations should be
avoided. However, negotiations may be done in case of some exceptional
situations relating to procurement of proprietary items, items with limited
sources of supply, evidence of cartel formation. However, such reasons for
negotiations should be documented. In case of unreasonable rates, re-
tendering may be conducted, but since re-tendering will lead to higher time
procurement might be done for bare minimum quantity for continuing the
operations. Delay in decision making may occur due to Negotiation or re-
tendering. Hence, competent authority should exercise due diligence while
choosing the alternative.

Rejection of Tenders
4.29 In NIT (Notice Inviting Tender), eligibility criteria are specified. Non-
compliance can make a tender invalid and liable to be rejected without
assigning further reasons.
A tender may be rejected in following situations:
(i) It stipulates its own conditions.
(ii) The validity period of bid is less than or differs from that in tender
form.
(iii) It does not disclose the constitution of the organization. The names,
address of offices, directors, partners etc. are not adequately
disclosed.

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(iv) Tender forms are not properly filled. Tender documents, attachments,
etc. are not signed on each page, are not certified as required.
(v) Bidder does not provide evidence of adequate facilities or does not
propose to make available sufficient resources.
(vi) Bidder does not attach acceptable proof of past experience and
performance.
(vii) Bidder does not attach self-certified copies of eligibility certificates
like, PAN card, valid income tax clearance certificate, sales tax/ VAT/
excise duty/ custom duty registration details, and registration, deposit
details with regional PF commissioner, etc.
4.30 A tender is invalid is rejected outright when:
(i) Minimum qualification criteria is not met.
(ii) EMD is not deposited before closing date and time of tender. In case
of two bid tenders, EMD is to be submitted with technical or
commercial bid.
(iii) Tender is submitted late.
(iv) Bidder is on holiday listed or has been blacklisted. This situation can
only arise if holiday listing or black listing is done after purchase of
tender papers.
(v) Price bid is incomplete.
4.31 Care is to be taken that no valid tender gets rejected. Justification of
rejection of any tender is to be placed on record but is not to be
communicated to the invalid bidder. If any fraud or forgery is committed,
EMD can be forfeited. If a vendor backs out after award of tender or fails to
start work within stipulated time without justification, EMD can be forfeited.

Scrutiny of Tender Documents and Attachments

4.32 A Tender Consideration Committee (TCC) is constituted to scrutinize
tender documents and put up a proposal to the competent authority for award
of a work order (WO) or a purchase order (PO). A TCC is usually constituted
with members from concerned function, engineering or material and finance
department.
4.33 In their first sitting at the appointed place, date and time, TCC
deliberate and decide on the course of action for finalization of proceedings.
Member from engineering or material department ensures that none of the

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bidders is either on the black list or holiday list. TCC may proceed in the
following manner:
(i) Check that the tender evaluation sheet has been completely filled up
and verified by all members of TOC together.
(ii) Compare the tender papers of individual bidders with the entries
made in the evaluation sheet.
(iii) Scrutinize the enclosures and attachments that are required to be
submitted with the bid papers. For example, if security deposit is to
be received, a valid cash receipt should be attached. Any bank
guarantee received should conform to the format and requirement of
the organization. BGs should be received directly from the issuing
bank.
(iv) In case of a two-bid or multi-bid tender, TCC should check that the
comparative statement relating to the technical bid has been cleared
by the concerned function like engineering department, materials
department, systems department etc.
(v) Similarly, the price bid comparative statement should be signed by
the related function and checked by finance department.
(vi) Completeness and correctness of the comparative statements need
to be ascertained by TCC.
(vii) TCC should study and evaluate the experience, technical
competence, capacity and financial status of the bidders with
reference to evidences produced, submission made etc.
(viii) If felt necessary TCC may also inspect the facilities of a vendor, cross
refer the credentials submitted with the issuing authorities, examine
financial statements, order book, comfort letters from customers of a
vendor regarding satisfactory performance etc.
(ix) Ask for clarification from, conduct discussion with vendors with due
notice to others to establish facts.
(x) Conduct inter/ intra-departmental meetings and seek clarifications
wherever felt necessary in one go without causing any delay in the
tendering calendar.
(xi) Opaque, piecemeal and intermittent approach to clarification is to be
avoided.

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(xii) Information contrary to the claims and submissions can render a

tender to be rejected.
(xiii) Normally, negotiation on tenders by TCC members is not allowed
unless TCC has been given prior approval by competent authority in
writing to conduct price negotiations with L-1 bidder. No upward price
negotiation or post-tender negotiation is allowed
(xiv) Once tenders are opened no voluntary/ subsequent rebate/ discount/
reduction in price or quantity discount is to be accepted from any
bidder. In case the concerned vendor refuses to withdraw such offers,
that bid is to be summarily rejected.
(xv) If any unforeseen or unusual circumstances makes it necessary to
revise price bids, TCC should insist on approval from the competent
authority to consider such revision.
(xvi) Then all the bidders should be simultaneously asked to submit
revised price bids. Such deliberations need to be recorded in minutes
of TCC meeting. No separate correspondence is to be made.
(xvii) Such cases are very rare and are not usually entertained by TCC. In
case, it becomes unavoidable TCC must establish through records,
papers that the sanctity of a price bid has not been compromised by
seeking revised price bids.
(xviii) No new condition from vendor is to be permitted during negotiation.
(xix) Vendors/ vendors are not to be allowed any time to withdraw any
counter conditions. All techno- commercial terms need to be
deliberated and settled during pre-price bid opening conference.
(xx) TCC members are required to prepare and jointly sign the minutes of
a meeting on the same day. TCC members are collectively
responsible for any recommendations made. So, difference of
opinion, if any, must clearly be specified and written down in the
proceeds of the meeting.
(xxi) TCC recommendations are crucial for the competent authority to
accord approval for finalization of a tender. Price variations beyond a
certain percentage should be critically evaluated by TCC in line with
organization policy.
(xxii) If there is a laid down policy that accommodates deviations from
estimates to a certain limit TCC may abide by such policies.

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 Stages of Tendering Process

(xxiii) If deviations are on the higher side then TCC with intimation to all
concerned and preferably with approval from competent authority
may go for price negotiations.
(xxiv) If L-1 bid is lower than the acceptable percentage or it appears to be
unworkable TCC may call for clarification from the bidder and insist of
indemnity from the bidder to the effect that in case of non-
performance the tender can be executed through other vendors at the
risk and cost of defaulting L-1. {to attach cvc circular on negotiation
with L 1 }
Note: An organization may, in certain circumstances engage consultants for
floating and finalization of tenders. Usually, a panel of consultants is
prepared by the following process:
(i) Advertisements are given in newspapers for pre-qualification offers
from consultants satisfying the technical, financial, experience
qualification parameters.
(ii) Empowered committee is to scrutinize offers received, prepare a
panel and put it up for approval of competent authority.
(iii) For specific assignments, LT may be invited from such empanelled
consultants.
(iv) Assignment is awarded in line with laid down policy and procedure.
(v) Security deposit and liquidated damage clauses are to be included in
consultancy contract.
(vi) Apart from technical qualification, a consultant is also required to
comply with all statutory registrations, requirements.
4.34 In such cases, the contract with the consultant is to be studied to
understand the scope and calendar of work, areas of representation and
responsibility, fee structure, payout schedule, any clause for damage, etc.
After appropriate discussion and understanding the assignment is to be
formally awarded to the consultant. The procedural checklist for tendering
through a consultant is as follows:
(i) Consultant prepares tender enquiry and all tender documents with
necessary supporting like work schedule, technical details, rate
analysis, drawings etc. and submit to concerned department for
correction, amendment, vetting and approval.

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(ii) After approval consultant will invite PT or LT as advised and in line

with the policies and procedures of the organization.
(iii) Tenders would, however, be received in the tender box, email
address of the organization.
(iv) Consultant will arrange opening of tenders. Authorized
representatives of the organization will open the bids in presence of
bidders and consultants.
(v) Consultant scrutinizes tender papers, attachments, enclosures,
evaluate technical bids, if required call the bidders to make all the
bids at par. He/she will build a comprehensive tender file, prepare a
comparative statement of technical bids and submit the final
recommendation with complete technical and legal justification for
opening of price bids.
(vi) Recommendation will be reviewed and considered by client
organization and clearance is given to the consultant for arranging
opening of price bids.
(vii) Consultant ensures that all eligible bidders are duly notified of place,
date and time of opening of price bids.
(viii) Price bids will be opened by the client’s designated officers from
related function and finance with the help of the consultant in
presence of eligible parties.
(ix) Consultant prepares comparative statement of price bids with
recommendations and submits to client for scrutiny. Any price
negotiation is to be done by the client organization and not the
consultant.
(x) With the approval of client, consultant will prepare detailed work/
purchase schedule/order, draft LOI and ask for the clearance of the
client.
(xi) Client will scrutinize LOI, work/purchase schedule/ order and award
tender.

Finalisation of a Tender
4.35 Before expiry of the tender validity period, the purchase organization
shall notify the successful vendor in writing, by suitable foolproof method,
that its tender (briefly indicating therein relevant details, like, quantity,
specification of the goods ordered, prices, etc.) has been accepted. In the

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 Stages of Tendering Process

same communication, the successful vendor is to be instructed to furnish the

required Performance Security within a specified period (generally 21 days).
4.36 Promptly after the above notification, the purchase organization is
also to issue the contract to the successful vendor asking therein, inter alia,
to send its unconditional acceptance of the contract within fifteen days. It
should also be made known to the successful vendor that, in case, it does
not furnish the required performance security or does not accept the contract
within the stipulated target dates, such non-compliance will constitute
sufficient ground for forfeiture of its EMD and processing the case for further
action against it (the successful bidder).
4.37 Tenders are finalized on the basis of TCC recommendations and
approval of competent authority. An LOI (letter of intent) is issued to the
successful bidder with the offer. Once bidder accepts the offer, it becomes a
binding contract.

Awarding a Work Order (WO) or a Purchase Order (PO)

(i) A WO or a PO is the most important document in the tendering
process. A note is initiated for approval of competent authority to
issue a WO/PO. All the pages of the note and subsequent
observations, noting, concurrence, approval must be serially
numbered. It not only specifies the terms of engagement of a vendor
but also defines the contractual rights and obligations of both the
parties. A WO also contains the names of the personnel who will
supervise the project and their authority and responsibility. Business
establishments usually have standard agreement forms. Two sets of
duly signed WO and agreement form are given to the selected
vendor. The original copies are retained. The duplicate copies are
signed by the vendor as an acknowledgement of receipt and
understanding and are returned.
(ii) Before work commences it is important to ascertain that the site is
physically and legally clear and all required permissions and
clearances have been taken by the vendor. Non-compliance may lead
to cancellation of tender.
(iii) Sometimes it is the responsibility of the organization to get a clear
title to land and hand it over to the contractor for the work. In hurry or
under pressure to meet date lines organizations do not pay due
attention to a clear title of land or NOC to start work. Internal audit

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Technical Guide on Internal Audit of Tendering Process

should verify title deeds of land or premises, NOCs received. A lot of

subsequent problems can be avoided if due attention is paid in time.
(iv) Registers of WOs and POs need to be created and maintained. In
SAP there is a provision for creating WO/PO to monitor progress and
payment and exercise budgetary/ cash outlay control. It is important
that no work starts or no purchase is made without a valid WO/PO.
Small work/purchase may, however, be directly charged to revenue.
Undue repetition of such expenditure should raise a red flag.
(v) SAP operates on separate modules like finance (FICO), materials
(MM), operations (OPS), supply and distribution (S&D), human
resources (HR) etc. All the modules are interlinked. In case payment
against purchases are not routed through MM module and payment is
made directly against invoices through FICO module, physical and
book balance of store items will not tally. There will be open goods
received (GR) and investment request (IR) items. Moreover, it will not
be possible to monitor re-order level (ROP), re-order quantity (ROQ),
purchase requisitions (PR) etc.
(vi) Each WO or PO should be serially numbered. In SAP serial is auto-
generated. The online WO/PO register may be formatted as below:
Header:
• WO/PO number, date, amount, place, description of work/
purchase, capital/ revenue, approval reference, approving
authority, target date.
• Name and designation of supervisor.
• Details of co-lateral like SD/ EMD/ BG, etc.
Table:
• Serial number of entry
• Running bill number, date, amount
• Supervisor’s work completion confirmation
• Adjustment of SD
• Other deductions like TDS (for service component) etc.
• Payment voucher reference
• Signature of paying authority.

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 Stages of Tendering Process

Securities, Co-laterals, Staggered Payments and

Liquidated Damages
4.38 Security and co-lateral are usually in the form earnest money deposit
(EMD), security deposit (SD) or bank guarantee (BG).
4.39 Earnest money deposit (EMD) is an amount that is to be deposited
by vendors at the time submitting quotations as a token of their earnestness
to abide by the terms and conditions of the tender and undertake the work,
if nominated on the basis of their quotation.
Amount of EMD is determined by the estimated cost of the works/purchase.
Certain categories of vendors are usually exempted from EMDs.
(i) Original equipment manufacturers (OEMs), sole distributors, sloe
selling agents, authorized dealers, sole importer, etc.
(ii) PSUs/SMEs registered with NSIC, etc.
(iii) Consultants providing architectural, taxation, legal services, etc.
Tender for services of consultants, CVC has given guidelines for selection of
consultant in Circular no. 08/06/11 which may be selected by private
enterprise which is annexed in Appendix 2.
4.40 EMD is refundable to a bidder as and when the bid fails to be
selected after opening the technical bid or after the price bid. Refund should
be made promptly without waiting for a request from the unsuccessful bidder.
Utmost care, however, is to be taken at the time of refund.
(i) Firstly, the original cash receipt is to be taken in hand. If it is claimed
that the original cash receipt has been lost, party is to be asked to
furnish an indemnity bond in the prescribed format.
(ii) Secondly, bank statement should be referred to ensure that bank
account was credited with the EMD amount in due course.
(iii) Thirdly, payment is to be released only the credit of the bank account
particulars furnished. Due care should be exercised in case of
NEFT/RTGS payments. Accounts department must ensure that there
is no outstanding liability against the EMD. The refund should either
appear as a debit in bank statement or appear in the list of cheques
issued but not presented.
While auditing EMDs look into the ageing of EMDs and ask for the reason of
delay in refund,

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4.41 A Security Deposit (SD) is asked from the successful bidder. In

complex, large amount tenders, work may be awarded to more than one
bidder. All such bidders are required to deposit SD for satisfactory
performance of contractual obligations and as a security against defect
liability for a mutually agreed period after date of work completion.
As such there is no upper limit for SD, but it is usually a percentage of value
of work actually done and not on the value of the WO/ PO.
4.42 SD is accepted by banker’s cheque/ DD or by way of deductions from
running bills. Needless to say a proper cash receipt is to be issued when SD
is received against banker’s cheque/ DD. Receipt of initial security deposit
and/or deduction of SD from running bills are to be recorded in the WO/PO
register. SD received/deducted is to appear as an outstanding liability with
ageing analysis in the SD schedule. Separate SD schedules for works and
purchases are prepared. In case of a BG, the entire amount gets locked up
but in case of SD, the vendor either pays a percentage of the work done or in
case of running bills continues to get paid for the major portion of his bills.
Thus the financial burden on the contractor is reasonable.
In a computerized system, like SAP, correct vendor and financial coding at
every step is very crucial.
4.43 SD becomes refundable on expiry of defect liability period. As in case
of EMD, due care is to be taken at the time of refund. In case of acquisition
and mergers, books of accounts get merged. Mapping of balances either
from legacy systems or from the books of merged entities is to be done very
carefully. In case, EMD/ SD balances appear without vendor codes appear,
these are to be segregated into a sub-ledger and a memorandum account
with whatever available pointers like vendors name/ address/ date, etc. is to
be maintained. Any refund from such an account must be done after
identification of the payer, receipt of indemnity bond and with approval of
competent authority.
Ageing of SD is to be audited carefully to detect any non-performance,
lapses, etc.
4.44 Bank Guarantee (BG) is another type of co-lateral that can be got
executed by the vendor or contractor. In many cases, material, like, steel
plates, cement is issued to contractors. Sometimes, mobilization advances
are given to contractors so that they can commence work. In such cases, BG
is taken to cover the cost of materials issued or mobilization advance given.
{CVC circular)

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4.45 Given the instances of banking irregularities, certain precautions

need to be taken while accepting BGs like:
(i) BG from only a scheduled bank is to be accepted. In a computerized
system bank details of vendors are uploaded. Whenever it is seen
that a vendor wishes to furnish a BG from another bank, reasons
thereof should be sought and recorded.
(ii) In no case BG is to be received directly from the contractor.
(iii) The concerned bank branch should directly send the BG.
(iv) As a precautionary measure a confirmation from the bank that the BG
had been indeed issued by that branch is to be taken.
(v) BG should be in the format prescribed and must contain a clause that
on demand bank would allow the BG to be encashed without any
demur.
(vi) A BG is to remain valid till the work is completed and till expiry of
defect liability period.
(vii) A composite BG covers both SD amount and mobilization advance.
Once mobilization advance is recovered, the value of the BG, on
request of contractor, can be reduced to cover the SD amount only.
(viii) Arranging a BG is the responsibility of the functional department.
Custody of BGs should be with the finance department, preferably
with cash section. A BG is a dormant co-lateral in the sense that it
does not entail an inflow of cash and does not impact the books. But
at the same time it is essential to acknowledge the latent asset and
liability against a BG in hand. SAP has designated contra codes for
BGs in hand.
(ix) BGs in hand should be reviewed on a monthly basis by cash section
and BGs that need to be renewed should be handed back to function
under acknowledgment at least one month before the date of expiry.
(x) Like cash in hand, BGs in hand should also be verified at required
intervals like quarterly, half-yearly and annual closing.
(xi) Cash section should maintain a BG register in the system. BG
register should include the following details.
(a) Serial number
(b) Name and vendor code of contractor

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Technical Guide on Internal Audit of Tendering Process

(c) WO/PO reference and a brief description.

(d) Name and branch of bank issuing the BG.
(e) Purpose, amount and validity of the BG.
(f) Date of receipt of BG.
(g) Date of confirmation received from issuing bank, as received
from function
(h) Date and acknowledgment of return of BG to function for either
re-validation or surrender.
(i) Date and reason of en-cashing a BG.

Post Tendering Process

4.46 Since at the time of audit entire process is completed for some
tenders, completed tenders could be evaluated. While vouching for the
process the internal auditor could also see at the proprietary perspective of
internal audit. Variations in the terms of tender could be studied. At times,
there are clauses in the awarding document requesting bank guarantees,
performance guarantees. Internal Auditor should check whether the post
selection requirements were complied. Adequate checks and controls needs
to be in place to check for compliance with the post selection requirements.
Also the vendors not complying with the same could be considered for being
blocked and marked as negative list of vendors, which should not be
awarded contracts.

General
4.47 No response to tenders: In case, if there is no response to the tender,
or when the tenders submitted have been collusive, or not in conformity with the
requirements in the tender, than contract may be considered for re-tendering.
While awarding to the existing vendor for minimum requirement on condition that
the requirements of the initial (previous) tender are not substantially modified in
the contract awarded.
4.48 Foreign currency Tenders: For tender comparison purpose,
quotations in foreign currencies must be converted in Indian rupees. The
conversion may be based on the selling rate of the relevant currency quoted
by the RBI on the tender closing date.
In order to avoid vendors putting in an unreasonable amount of allowance in
their quotations to cover exchange risks for the contract period, departments
may allow vendors to quote in foreign currencies.

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4.49 Marking system for tendering: As a general rule, buyer shall award
contracts to vendors complying with the tender specifications, terms and
conditions as specified and who are fully capable of undertaking the
contracts and whose price quotations, whether for goods or services, are the
lowest tenders. However, there are occasions where the quality of the goods
or services to be provided is of such importance that separate assessments
of the technical and price aspects, with pre-determined relative weighting
attached to particular features, would result in a better value-for-money.
Circumstances in which procuring departments may consider adopting a
marking scheme include, but are not confined to, the following:
(a) Procurement of high-value, complex equipment where there is rapid
technological advancement or products with specific requirements
such as improved recyclability, greater durability and less energy
consumption; and
(b) Service contracts which are high-value or involve complex
requirements or which are sensitive and call for a high degree of
specialization, reliability or co-ordination.
When a marking scheme is used to assess the tenders, departments shall
award contracts to vendors who obtain the highest overall score
4.50 Dispute redressal mechanism and jurisdiction: The tender document
and contract should specify dispute redressal mechanism to be adopted for
the contract and in case legal dispute arising out of this tender/ contract, the
jurisdiction shall be of which area. Arbitration if followed, it should specify
mode of selection of arbitrator. In case of sole arbitrator, the decision of sole
arbitrator on the matter in dispute shall be final and binding on the both
parties, should be mentioned in contract. Reference to Arbitration and
Conciliation Act 1996 may also be drawn.

Cancellation of a Contract
4.51 Cancellation means termination of the entire agreement by the act of
parties/ law. Generally, the contract specifies the conditions on which the
contract shall stand cancelled and also the rights and responsibilities of both
the parties in case of a cancellation. This clause is required to prevent any
unwanted litigations. It is advisable to have a written mutual cancellation
agreement. It formalizes the cancellation of contract and safeguards, the
interests of the parties.

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Holiday Listing of an Empanelled Party

4.52 Legal meaning of terms like “holiday listing”, “black listing”, “banning”,
“removal from approved panel” is same.
A party may be a bidder, licensor, vendor, sub-vendor, contractor, sub-
contractor, consultant, and sub-consultant.
4.53 Putting a party on holiday list is a rather unusual step taken under
circumstances that marks that party as an undesirable business associate.
Reasons for such a strong measure may be:
(i) Repeated failure of contractual obligations, breach of contract, and
abandonment of contract.
(ii) Refusal to accept LOA, WO or PO in a properly conducted tender.
(iii) Nominated as L1 after price bid, but thereafter raises or withdraws
the bid within the validity period of the tender.
(iv) Repeated failure to repay loans, advances and other dues.
(v) Bankruptcy, dissolution of partnership, winding up while within
contract period
(vi) Failure to deliver in time, in proper quantity, specification, quality,
etc., defective, faulty work.
(vii) Submission of fake, forged, false documents, certificates.
(viii) Malpractices, like fraud, pilferage, corrupt practices, bribery, violent
activities, inciting unrest, etc., not necessarily confined to the
contractual context.
(ix) Unauthorized access to and/ or passing on of official/ confidential
documents, information, trademarks, patents, etc.
(x) Deliberate violation or evasion of the law of the land.
(xi) In case of PSUs, if the concerned administrative ministry puts a party
on holiday list, the order becomes applicable in the said PSUs.
4.54 The list of reasons is illustrative, not exhaustive .Holiday listing,
however, should be done judiciously. Usually an empowered committee
consisting of representatives from related function, finance and legal
departments is formed to look into the circumstances. To give the party a fair
opportunity, a show cause notice with the approval of competent authority is
issued and a reasonable time is allowed for a reply and representation. The
committee studies the reply and considers the representation by the party,

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deliberate on the imperatives and overall effect of putting a party on holiday

list and submits its recommendation including the period for which the party
should remain on holiday list.
4.55 Effects of holiday listing is as follows:
(i) No enquiry, bid, tender is to be issued to a party already on holiday
list.
(ii) If put on holiday list during a tendering process then no further
interaction; if technical bid has been opened, both the opened
technical bid and unopened price bid papers along with EMD, BG,
etc. are to be returned under acknowledgement.
(iii) In case price bid has been opened, it will not be considered and all
papers and co-laterals are to be returned under acknowledgement.
This practice is to be followed even when the party is L1.
(iv) In emergent cases, however, exceptions may be made with approval
of competent authority; it is better avoided.
(v) All concerned departments, locations, divisions, affiliates are to be
notified.
Delisting from holiday list comes into effect on expiry of the holiday period.
Review of holiday period is technically possible but is not advisable. After
expiry of holiday period usually, the party, requests for re-listing. Otherwise,
the concerned party may also be notified.

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 Chapter 5
E-Tendering

5.1 Internet provides a platform for the collaborative procurement of

goods, works and services using electronic methods at every stage of the
procurement process. Automating the procurement process using electronic
tools/ techniques and enabling opportunities to suppliers fully supports the

objective of non‐discrimination, fair and open competition. Agencies world

over face threats to their online e-procurement platforms and the same are
addressed by employing a combination of security features and security best
practices which result in reduced threat of data loss, leakage or
manipulation.
5.2 E-tendering is a process of carrying out entire tendering cycle online
with efficiency and economy. Process followed under e-tender is same as
conventional tender except it involves working in IT environment.
5.3 All the steps involved starting from inviting the tenders till decision of
selection of vendor will be carried out on the system. Monetary limits are
defined by organizations; if the expected tender size exceeds the amount
then E-tendering would be essential.
5.4 In E-tendering, digital signature plays a vital role. Tender notice will
be approved and authorized for publishing by digital signature certificate by
approving authority as per delegation of powers. Digital Signature has the
same legal recognition and validity as handwritten signature. Digital
signature also ensures that no alterations are made to the data once the
document has been digitally signed.
5.5 Several roles would be created in the system, viz,. publisher, admin,
bid opener, evaluator, auditor, etc. Adequate rights assigned to this profiles
should be ensured. This ensures that tampering/ editing by unauthorized
person is not possible.
5.6 Bidders intending to participate have to register with valid mail id and
attaching digital signature. Under E-tendering, generally, application fees are
 E-Tendering

paid at the time of submission of tender. It has to be ensured that fees have
been received for all the bidders participating.
5.7 Under E-tendering, submission of BG is, generally, made by sending
the scan copies of the BG alongwith the tender document or physically
sending the document to the purchaser. However, physical document shall
be presented in case of scan copy on designated date, failing to which the
vendor shall not be allowed to part in future tenders.

Benefits of E-tendering
5.8 Benefits to company floating the tender are as follows:
(i) Completely Automated Process.
(ii) Shortens Procurement Cycle.
(iii) Standardized purchasing processes across the organization.
(iv) Economical and Environment Friendly.
(v) Greater Transparency.
(vi) System aided Evaluation process.
(vii) Minimize Human errors.
Benefits to vendors are as follows:
(i) Anytime and Anywhere Bidding.
(ii) Fair participation for vendors.
(iii) No dependence on Newspaper.
(iv) Reduced administrative hassles.
(v) Economical – saving on Traveling cost.
(vi) Reduces efforts and cost of bidding.
(vii) No tenders can be missed because of distance.

Challenges in E-tendering
5.9 Challenges in E-tendering are as under:
(i) Detecting whether document is tampered or not.
(ii) Identifying a person in the faceless world of Internet.
(iii) Insufficiently skilled staff.

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(iv) Document Secrecy.

(v) Bidding should not be allowed after due date and time.
(vi) Bids cannot be opened before due date and time.
(vii) Bids can only be opened by authorized officers.
5.10 At times companies outsource management or infrastructure related
facilities to outside companies. Data security risks that arise needs to be
justify adequately addressed. SLA monitoring shall ensure that the system is
adhering to the agreed upon service related.

CVC Guidelines
5.11 Assuming that management issues are taken care of the following
aspects of Infrastructure and application are essential to have a fairly secure
procurement. Security of E-tender system is essentially an amalgamated
output of Security of Infrastructure, Application and Management given in
detailed in CVC circular no. 29/909 extract is given as under.
(A) Security Infrastructure Level:
(i) Issues- Best Practices to achieve security considerations.
(ii) Perimeter Defense - Deployment of routers, Firewalls, IPS/IDS,
Remote Access and network segmentation.
(iii) Authentication- Network authentication through deployment of
password policy for accessing the network resources. To minimize
unauthorized access to the e procurement system at system level.
(iv) Monitoring - Deployment of logging at OS/network level and
monitoring the same.
(v) Secure configuration of network host - The security of individual
servers & workstations is a critical factor in the defense of any
environment, especially when remote access is allowed. Workstations
should have safeguards in place to resist common attacks.
(vi) System patching - As the vulnerability of the system are discovered
almost regularly and the system vendors are also releasing the
patches. It is expected the host are patched with latest security
updates released by the vendors.
(vii) Control of malware - Suitable control like anti-virus, anti-spyware ext.
should be deployed on the host associated with e-procurement
system. However, option for running the services at non-privileged

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user profile may be looked for. Otherwise, suitable operating system

which is immune to virus, Trojan and malware may be deployed.
(viii) Structured cabling - The availability of the network services is
critically dependent on the quality of interconnection between the
hosts through structured including termination and marking. It is
expected the e-procurement system has implemented structured
cabling and other controls related with network and interconnection.
(B) Security at Application Level: Security during Design
(i) Issues - Best Practices to achieve security considerations.
(ii) Authentication - The authentication mechanism of the e-procurement
application should ensure that the credentials are submitted on the
pages that are server under SSL.
(iii) Access Control - The application shall enforce proper access control
model to ensure that the parameter available to the user cannot be
used for launching any attack.
(iv) Session management - The design should ensure that the session
tokens are adequately protected from guessing during as an
authenticated session.
(v) Error handling - The design should ensure that the application does
not present user error messages to the outside world which can be
used for attacking the application.
(vi) Input validation - The application may accept input at multiple points
from external sources, such as users, client applications, and data
feeds. It should perform validation checks of the syntactic and
semantic validity of the input. It should also check that input data
does not violate limitations of underlying or dependent components,
particularly string length and character set. All users supplied fields
should be validated at the serve site.
(vii) Application logging and monitoring - Logging should be enabled
across all applications in the environment. Log file data is important
for incident and trend analysis as well as for auditing purposes. The
application should log failed and successful authentication attempts,
changes to application data including user accounts, serve
application errors and failed and successful access to resource.
When writing log data, the application should avoid writing sensitive
data to log files.

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(C) Security during Application Deployment and Use

(i) Issues -Best Practices to achieve security considerations.
(ii) Availability Clustering. Load balancing - Depending on the number of
expected hits and access the options for clustering of servers and
load balancing of the web application shall be implemented.
(iii) Application and data recovery - Suitable management procedure shall
be deployed for regular backup of application and data. The regularity
of data backup shall be in commensurate with the nature of
transaction/ business translated into the e-procurement system.
(iv) Integrity of Application - Control of source code. Configuration
management - Suitable management control shall be implemented on
availability of updated source code and its deployment. Strict
configuration control is recommended to ensure that the latest
software in the production system.
(D) Security in Data Storage and Communication
(i) Issues - Best Practices to achieve security considerations.
(ii) Encryption for data storage - Sensitive data should be encrypted or
hashed in the database and file system. The application should
differentiate between data that is sensitive to disclosure and must be
encrypted, data that is sensitive only to tampering and for which a
keyed hash value (HMAC) must be generated, and data that can be
irreversibly transformed (hashed) without loss of functionality (such
as passwords). The application should store keys used for decryption
separately from the encrypted data. Examples of widely accepted
strong ciphers are 3DES, AES, RSA, RC4 and Blowfish. Use 128-bit
keys (1024 bits for RSA) at a minimum.
(E) Data Transfer Security
(i) Sensitive data should be encrypted prior to transmission to other
components. Verify that intermediate components that handle the
data in clear-text form, prior to transmission or subsequent to receipt,
do not present an undue threat to the data. The application should
take advantage of authentication features available within the
transport security mechanism. Specially, encryption methodology like
SSL must be deployed while communicating with the payment
gateway over public network.

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(ii) Access control - Applications should enforce an authorization

mechanism that provides access to sensitive data and functionality
only to suitably permitted users or clients. Role-based access
controls should be enforced at the database level as well as at the
application interface. This will protect the database in the event that
the client application is exploited. Authorization checks should require
prior successful authentication to have occurred. All attempts to
obtain access, without proper authorization should be logged.
Conduct regular testing of key applications that process sensitive
data and of the interfaces available to users from the Internet Include
both “black box” informed” testing against the application. Determine
if users can gain access to data from other accounts.
5.12 Some of the other good practices for implementers of E-
procurements to achieve security considerations are as follows:
(i) Common unified platform for all departments: A single platform to
be used by all departments across a State/ Department/
Organizations reduces the threat to security of data. With a
centralized implementation, where in the procurement data is
preferably hosted and maintained by the State/ Department/
Organizations itself; concerns of security and ownership of data are
well addressed. A common platform further facilitates demand
aggregation of common items across State/ Department/
Organizations, and result in economies of scale.
(ii) Public key Infrastructure (PK) Implementation: This is of the most
critical security features that are required to be implemented in order
to establish non-repudiation and to ensure the security of the online
system. Under the system, participating contractors and suppliers, as
well as the departmental users, are issued a Digital Signature
Certificate (DSC) by a licensed Certification Authority.
(iii) Third Party Audit: It is recommended that the implemented solution
be audited by a competent third party at least once a year. Through
the above mentioned steps, the complete security of the system and
the transacted data can be ensured and may be communicated to all
concerned agencies.
5.13 Guidelines/ Procedure to be followed in introduction of E-procurement
Solution (Source GNCTD Guidelines):
1. Notice inviting Tender (NIT)/ Tender documents: The Notice
Inviting Tenders (NIT) and Tender documents etc., shall be in the

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Standard formats as applicable to conventional Tenders and will be

finalized/ approved by the officers competent as in the case of
conventional Tenders.
2. Publication of NIT: The officers competent to publish NIT in case of
conventional Tenders will host the NIT in the
http://delhi.govtprocurement.com. Simultaneously, a notification
should also be published in the leading newspapers, as per existing
rules, in the following format:
Name of the Department: …………………….
Name of the work: .........…………………………
Estimated cost: Rs..........................................................
Date of release of tender through e-procurement solution:
Last date/ Time for receipt of tenders through e-procurement solution:
3. Registration of Contractors: The contractor will register with the
department. Department will charge an annual enrollment fee from
each vendor willing to participate in e-Tender of department.
4. Digital Certificate: Digital Certificate is required for issuance,
opening, evaluation etc. of the Bids.
5. Formation of Evaluation Committee: If required, an evaluation
committee can be formed to evaluate the bids as done in the
conventional tenders.
6. Payment of cost of Tender Documents: The collection of cost of
Tender documents is dispensed away with, as there is no physical
supply of tender documents and also to have absolute anonymity of
the bidders participating in e- procurement solution.
7. Submission of Bids: The bidders who are desirous of participating
in 'e' procurement shall submit their Technical bids, price bids etc., in
the standard formats prescribed in the Tender documents, displayed
at http://delhi.govtprocurement.com. The bidders should upload the
scanned copies of all the relevant certificates, documents etc., and in
the http://delhi.govtprocurement.com in support of their Technical
bids. The bidder shall sign on all the statements, documents,
certificates, uploaded by him, owning responsibility for their
correctness/ authenticity.
8. Payment of Bid Security (Earnest Money Deposit): The EMD shall
be in the form of DD/ BG from a bank, as per the guideline. Photo-

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 E-Tendering

copy of the DD/ BG is to be scanned and uploaded along with the

Bid, and the original DD/ BG shall be sent to the concerned Dept. so
as to reach before the date of closing of the Bids. Failure to furnish
the original DD/ BG before the closing of the bid will entail rejection of
bid and blacklisting.
9. Technical Bids/ Price Bids Opening: Technical bids will be opened
online by the concerned officer/officers at the time and date as
specified in the tender documents. All the Statements, documents,
certificates, DD/ BG etc., uploaded by the Bidder will be verified and
downloaded, for technical evaluation. The clarifications, particulars, if
any, required from the bidders, will be obtained either online or in the
conventional method by addressing the bidders. The technical bids
will be evaluated against the specified parameters/ criteria, same as
in the case of conventional tenders and the technically qualified
bidders will be identified. The result of Technical bid evaluation will
be displayed on the http://delhi.govtprocurement.com which can be
seen by all the bidders who participated in the Tenders. Similarly, at
the specified date and time, the price bids of all the technically
qualified bidders will be opened online by the concerned
officer/officers and the result will be displayed on the
http://delhi.govtprocurement.com which can be seen by all the
bidders who participated in the Tenders. Till the technical bids are
opened, the identity of the bidders who participated in the tenders is
to be kept confidential. Similarly, till the price bids are opened, the bid
- offers are to be kept confidential
10. Processing of Tenders: The concerned officer/officers will evaluate
and process the tenders as done in the conventional tenders and will
communicates the decision to the bidder online.
11. Payment of Performance Guarantee: The bidder will submit the
Performance Guarantee as done in Conventional Tenders.
12. Participation of Bidders at the time of Opening of Bids: Bidders
have two options to participate in tendering process at the time of
opening of Bids:
(i) Bidders can come at the place of opening of bids
(electronically) as done in the conventional tender process.
(ii) Bidders can track the process online.

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Technical Guide on Internal Audit of Tendering Process

13. Financial Rules for E-procurement: The e-procure system would be

applicable for purchase of goods, outsourcing of services and
execution of work as prescribed in GFRs/PWD manual.
14. Signing of Agreement: After the award of the contract, an
agreement may be signed as done in Conventional tenders.

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 Chapter 6
About Internal Audit

6.1 Preface to the Standards on Internal Audit, issued by the Institute of

Chartered Accountants of India defines the term Internal Audit as follows:
“Internal Audit is an independent management function, which involves a
continuous and critical appraisal of the functioning of an entity with a view to
suggest improvements thereto and add value to and strengthen the overall
governance mechanism of the entity, including the entity’s strategic risk
management and internal control system.”
6.2 The abovementioned definition highlights the following facets of an
internal audit:
(i) Internal auditor should be independent of the activities they audit.
The internal audit function is, generally, considered independent
when it can carry out its work freely and objectively. Independence
permits internal auditors to render impartial and unbiased judgment
essential to the proper conduct of audits.
(ii) Internal audit is a management function, thus, it has the high-level
objective of serving management’s needs through constructive
recommendations in areas such as, internal control, risk, utilization of
resources, compliance with laws, management information system,
etc.
(iii) Internal auditor’s role should be a dynamic one, continually changing
to meet the needs of the organization. There is often a need to
change audit plans as circumstances warrant. These changes may
include coverage of new areas, assistance to management in solving
problems, and the development of new internal audit techniques.
(iv) An effective internal audit function plays a key role in assisting the
board to discharge its governance responsibilities. Thus, it
contributes in accomplishment of objectives and goals of the
organization through ethical and effective governance.
(v) Risk management enables management to effectively deal with risk,
associated uncertainty and enhancing the capacity to build value to
the entity or enterprise and its stakeholders. Internal auditor plays an
Technical Guide on Internal Audit of Tendering Process

important role in providing assurance to management on the

effectiveness of risk management.
(vi) Internal audit function constitutes a separate component of internal
control with the objective of determining whether other internal
controls are well designed and properly operated.
Thus, the examination and appraisal of controls are normally components,
either directly or indirectly, of every type of internal auditing assignment.

Factors Contributing to the Evolution of Internal

Audit
6. 3 General Guidelines on Internal Audit, issued by the Institute of
Chartered Accountants of India, describes the factors contributing the
evolution of Internal Audit in India, which are as follows:
(i) Increased Size and Complexity of Businesses
Increased size and business spread dilutes direct management oversight on
various functions, necessitating the need for a full time, independent and
dedicated team to review and appraise operations.
(ii) Enhanced Compliance Requirements
Increase in the geographical spread of the businesses has also led to
crossing of political frontiers by businesses in a bid to tap global capital. This
has thrown up compliance with the laws of the home country as well as the
laws of that land as a critical factor for existence of businesses abroad.
(iii) Focus on Risk Management and Internal Controls
to Manage Them
Internal auditors can carry out their job in a more focused manner by
directing their efforts in the areas where there is a greater risk, thereby
enhancing the overall efficiency of the process and adding greater value with
the same set of resources.
(iv) Stringent Norms Mandated by Regulators to
Protect Investors
The regulators are coming up in a big way to protect the interests of the
investors. The focus of the latest regulations being ethical conduct of
business enhanced corporate governance and financial reporting
requirements, etc.

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 About Internal Audit

(v) Unconventional Business Models

Businesses today use unconventional models and practices, for example,
outsourcing of non-core areas, such as accounting.
(vi) Intensive Use of Information Technology
Information technology (IT) is invariably embedded in all spheres of activities
of a modern business enterprise today, from data processing to resource
planning to online sales and e-commerce. Use of IT has, however, increased
the threat of data thefts or losses on account of systems failure or
hacking/espionage, as well as the need to comply with the cyber laws, etc.
(vii) An Increasingly Competitive Environment
Whereas deregulation and globalization have melted the political as well as
other barriers to entry in the markets for goods and services, free flow of
capital, technology and know-how among the countries as well as strong
infrastructure has helped in bringing down the costs of production and better
access to the existing and potential consumers. This in turn, has lured more
and more players in the existing markets, thereby, stiffening the competition.

Methodology for Internal Audit

Standards on Internal Audit
6.4 The Institute of Chartered Accountants of India has till date issued
seventeen Standards on Internal Audit (SIAs), which aim to codify the best
practices in the area of internal audit and also serve to provide a benchmark
of the performance of the internal audit services. While formulating SIAs, the
Board takes into consideration the applicable laws, customs, usages,
business environment and generally accepted internal auditing practices in
India. The list of Standards on Internal Audit (SIAs) is given below:
SIA 1 Planning an Internal Audit
SIA 2 Basic Principles Governing Internal Audit
SIA 3 Documentation
SIA 4 Reporting
SIA 5 Sampling
SIA 6 Analytical Procedures
SIA 7 Quality Assurance in Internal Audit

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Technical Guide on Internal Audit of Tendering Process

SIA 8 Terms of Internal Audit Engagement

SIA 9 Communication with Management
SIA 10 Internal Audit Evidence
SIA 11 Consideration of Fraud in an Internal Audit
SIA 12 Internal Control Evaluation
SIA 13 Enterprise Risk Management
SIA 14 Internal Audit in an Information Technology Environment
SIA 15 Knowledge of the Entity and its Environment
SIA 16 Using the Work of an Expert
SIA 17 Consideration of Laws and Regulations in an Internal Audit
Some important aspects on internal audit have been discussed in the
following paragraphs:

Planning an Internal Audit

6.5 The internal audit plan should be comprehensive enough to ensure
that it helps in achieving of the above overall objectives of an internal audit.
The internal audit plan should, generally, also be consistent with the goals
and objectives of the internal audit function as listed out in the internal audit
charter as well as the goals and objectives of the organization. Internal audit
plan should cover areas such as:
(i) Obtaining the knowledge of the legal and regulatory framework within
which the entity operates.
(ii) Obtaining the knowledge of the entity’s accounting and internal
control systems and policies.
(iii) Determining the effectiveness of the internal control procedures
adopted by the entity.
(iv) Determining the nature, timing and extent of procedures to be
performed.
(v) Identifying the activities warranting special focus based on the
materiality and criticality of such activities, and their overall effect on
operations of the entity.
(vi) Identifying and allocating staff to the different activities to be
undertaken.

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 About Internal Audit

(vii) Setting the time budget for each of the activities.

(viii) Identifying the reporting responsibilities.
The internal auditor may refer Standard on Internal Audit (SIA) 1, Planning
an Internal Audit for guidance in this regard.

Terms of Internal Audit Engagement

6.6 The client is expected to formally communicate the appointment to
the internal auditor. Upon receiving the communication, the internal auditor
should send an engagement letter, preferably before the commencement of
engagement so as to avoid any misunderstandings. The internal auditor and
the client/auditee should record the terms of engagement in the letter or
other suitable form of contract and it shall also confirm objective and scope
of internal audit with the client.
The engagement letter should, generally, include reference to the following
aspects:
(i) Objective of the internal audit;
(ii) Management’s responsibilities;
(iii) Scope of internal audit (including reference to the applicable
legislation, regulation and various pronouncement of ICAI);
(iv) Access to records, documents and information required in connection
with the internal audit;
(v) Expectation to receive management’s written confirmation in respect
to representation made in connection with the audit;
(vi) Basis on which fees shall be computed and the billing arrangements
thereof. Any changes in the terms of the appointment should be
communicated in written form. Moreover, the internal audit may be on
a continuous basis, monthly, quarterly or even annual. It is important
for the internal auditor to ensure that the periodicity of the internal
audit is sufficient in the light of overall business condition.
The Internal Auditor may refer Standard on Internal Audit (SIA) 8, Terms of
Internal Audit Engagement that established Standards and provides
guidance in respect of terms of engagement of the internal audit activity
whether carried out in house or by an external agency.

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Technical Guide on Internal Audit of Tendering Process

Knowledge of the Business

6.7 Prior to commencement of internal audit assignment, the internal
auditor should have or obtain the knowledge of the business. The internal
auditor should acquire sufficient knowledge to enable him to identify and
understand the events, transactions and practices that can have significant
effect on the internal audit process. Such knowledge shall be helpful to the
internal auditor in assessing the inherent risk and control risk and in
determining the nature, timing and extent of the internal audit procedures.
Knowledge of the business assists the internal auditor in:
(i) Assessing the risk and identifying the problems;
(ii) Planning and performing the internal audit effectively and efficiently;
(iii) Evaluating audit evidence; and
(iv) Providing better service to the client.
The internal auditor should prepare the flow of events, transactions,
processes and practices within the organization. This will help him in gaining
better understanding of the process and the existence of the internal
controls. They may refer to Standard on Internal Audit (SIA) 15, Knowledge
of the Entity and its Environment for detailed guidance on what constitutes
knowledge of an entity’s business, its importance to various phases of an
internal audit engagement and the techniques to be adopted by the internal
auditor in acquiring such knowledge about the client others and its
environment.

Audit Planning, Materiality and Sampling

6.8 After acquiring the knowledge of business and various laws and
regulation applicable to the tendering process the internal auditor should plan
out the internal audit activity. Planning helps in achieving the objectives of
internal audit function. Adequate planning ensures that:
(i) Appropriate attention is devoted to significant areas of audit
(ii) Potential problems are identified
(iii) Skills and time of the staff are appropriately utilized
(iv) Work is carried out in accordance with the applicable
pronouncements of ICAI
(v) Work is carried out in conformity with the applicable laws and
regulation.

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 About Internal Audit

6.9 In preparing an internal audit program, an internal auditor should

obtain an understanding of the accounting and internal control system
prevalent within the entity, exercise preliminary judgment regarding the
critical areas to be considered during the internal audit. It also helps the
internal auditor in determining the audit materiality, nature and extent of audit
procedures to be adopted. While designing an audit sample the internal
auditor should consider the specific audit objectives, materiality, population
from which the internal auditor wishes to select the sample, area of audit
significance and the sample size. The guidance regarding sampling has been
provided in Standard on Internal Audit (SIA) 5, Sampling.

Internal Control
6.10 Internal controls are a system consisting of specific policies and
procedures designed to provide management with reasonable assurance that
the goals and objectives it believes important to the entity will be met.
“Internal Control System” means all the policies and procedures (internal
controls) adopted by the management of an entity to assist in achieving
management’s objective of ensuring, as far as practicable, the orderly and
efficient conduct of its business, including adherence to management
policies, the safeguarding of assets, the prevention and detection of fraud
and error, the accuracy and completeness of the accounting records, and the
timely preparation of reliable financial information. The internal audit function
constitutes a separate component of internal control with the objective of
determining whether other internal controls are well designed and properly
operated.
6.11 Internal control system consists of following inter-related components:
(i) Control (Or Operating) Environment
(ii) Risk Assessment
(iii) Control Objectivity Setting
(iv) Event Identification
(v) Control Activities
(vi) Information and Communication
(vii) Monitoring
(viii) Risk Response.

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Technical Guide on Internal Audit of Tendering Process

6.12 The system of internal control must be under continuous supervision

by management to determine that it is functioning as prescribed and is
modified, as appropriate, for changes in environment. The internal control
system extends beyond those matters which relate directly to the functions of
the accounting system.
6.13 The internal auditor should obtain an understanding of the significant
processes and internal control systems sufficient to plan the internal audit
engagement and develop an effective internal audit approach. The internal
auditor should use professional judgment to assess and evaluate the
maturity of the entity’s internal control. The auditor should obtain an
understanding of the control environment sufficient to assess management’s
attitudes, awareness and actions regarding internal controls and their
importance in the entity.
6.14 The internal auditor should examine the continued effectiveness of
the internal control system through evaluation and make recommendations, if
any, for improving that effectiveness.
The importance of internal controls in a tendering process need not be over-
emphasized. Internal audit plays a major role in determining the
effectiveness of internal controls and highlights areas for improvement. The
Internal auditor may also refer to Standard on Internal Audit (SIA) 12, Internal
Control Evaluation for a detailed guidance on internal control.

Consideration of Fraud in an Internal Audit

6.15 The primary responsibility for prevention and detection of frauds is
that of the management of the entity. The internal auditor should, however,
help the management fulfill its responsibilities relating to fraud prevention
and detection. The internal auditor should obtain an understanding of the
various aspects of the control environment and evaluate the same as to the
operating effectiveness. The internal auditor should specifically evaluate the
policies and procedures established by the management to identify and
assess the risk of frauds, including the possibility of fraudulent financial
reporting and misappropriation of assets. The internal auditor should assess
the operating effectiveness of the policies and procedures established by the
management to enable to make timely and effective decisions and discharge
their responsibilities efficiently. The internal auditor should assess whether
the controls implemented by the management to ensure that the risks
identified are responded to as per the policy or the specific decision of the
management, as the case may be, are in fact working effectively and whether

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 About Internal Audit

they are effective in prevention or timely detection and correction of the

frauds or breach of internal controls. The internal auditor should evaluate the
mechanism in place for supervision and assessment of the internal controls
to identify instances of any actual or possible breaches therein and to take
corrective action on a timely basis. The Standard on Internal Auditor
(SIA) 11, Consideration of Fraud in an Internal Audit covers this aspect.

Internal Audit in an Information Technology Environment

6.16 Computer Information System (CIS) environment exists when one or
more computer(s) of any type or size is (are) involved in the processing of
financial information, including quantitative data and the significance in
relation to the audit, whether those computers are operated by the entity or
third party.
6.17 The overall objective and scope of internal audit does not change in a
CIS environment. However, the use of computer changes the processing,
storage, retrieval and communication of financial information and may affect
the accounting and internal control systems employed by the entity.
Moreover, the risks involved in an internal audit may too undergo a change.
The internal auditor should have sufficient knowledge of the CIS environment
to plan, direct, supervise, control and review the work performed.
6.18 The data in an Entity operating in CIS environment is, generally,
voluminous. The CIS automatically generates material transaction or entries
and exchanges transaction automatically with other organization as in
electronic data interface (EDI) systems. Source documents, computer files
and other evidential matter exist only for short period and in machine
readable form. The use of the computer Assisted Audit Technique (CAAT)
shall increase the efficiency in the performance and enable the internal
auditor to economically apply certain procedures to the entire population or
accounts transaction.
6.19 The internal auditor should understand the CIS Environment in
designing audit procedures to reduce the audit risk to an acceptable low
level. The internal auditor should also document the audit plan, the nature,
the timing and the extent of audit procedures performed and the conclusions
drawn from the evidence obtained which may be in the electronic form. The
internal auditor should ensure that such electronic evidence is adequately
and safely stored and is retrievable in its entirety, as and when required.
6.20 The internal auditor may refer to Standard on Internal Audit (SIA) 14,
Internal Audit in an Information Technology Environment for guidance on

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procedures to be followed when an audit is conducted in a computer

information systems (CIS) environment.

Overview of Compliance
6.21 Compliance means ensuring conformity and adherence to regulatory
acts, rules, procedures, laws, regulation, directives and circulars. Standard
on Internal Audit (SIA) 17 issued by the ICAI relating to Consideration of
Laws and Regulations in an Internal Audit states that when planning and
performing audit procedures and in evaluating and reporting the results
thereof, the internal auditor should recognize that noncompliance by the
entity with laws and regulation may materially affect the financial statements.
However, an audit cannot be expected to detect noncompliance with all laws
and regulations. Detection of noncompliance, regardless of materiality,
requires consideration of the implications for the integrity of management or
employees and the possible effect on the other aspect of the audit.
6.22 Non-compliance with laws and regulations could result in financial
consequences for the entity such as, fines, litigation, etc. Internal auditor
cannot be expected to detect non-compliance with all laws and regulations;
however this argument shall not apply to engagements where the internal
auditor is specifically engaged to test and report separately on compliance
with specific law and regulations.
6.23 The management is responsible to ensure that the entity’s operations
are conducted in accordance with laws and regulations. The responsibility for
prevention and detection of non-compliance shall be that of the management;
however the internal auditor should plan and perform the internal audit
recognizing that the internal audit may reveal conditions or events that would
lead to questioning whether an entity is complying with laws and regulations.
6.24 The term “Non-compliance” refers to acts of omission or commission
by the entity being audited, either intentional or unintentional, which are
contrary to the prevailing laws and regulations. Such acts include
transactions entered into by, or in name of the entity or on its behalf by the
management or employees. However, noncompliance does not include
personal misconduct (unrelated to the business activity of the entity) by the
entity’s management or employees.

Understanding of Laws and Regulations

6.25 Laws and regulation vary considerably in their relation to the financial
statements. Some laws or regulations determine the form or content of an

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 About Internal Audit

entity’s financial statement or the amounts to be recorded or disclosures to

be made in financial statements. Other laws or regulation are to be complied
with by management or prescribed by the provisions under which the entity is
allowed to conduct its business. Non-compliance with laws and regulation
could result in financial consequences for the entity such as, fines, litigation,
etc. It also has a potential effect on going concern as an entity.
6.26 The internal auditor should plan and perform the audit recognizing
that the audit may reveal conditions or events that would lead to questioning
whether an entity is complying with laws and regulations. In order to plan the
internal audit, the internal auditor should obtain understanding of the legal
and regulatory framework applicable to the entity and how the entity is
complying with that framework.
6.27 To obtain this understanding, the internal auditor would particularly
recognize that non-compliance of some laws and regulations may have a
fundamental effect on the operations of the entity and may even cause the
entity to cease operation, or call into question the entity’s continuance as
going concern. To obtain the understanding of laws and regulations, the
internal auditor would ordinarily:
(i) Use the existing knowledge of the entity’s industry and business.
(ii) Inquire with management as to the laws or regulations that may be
expected to have a fundamental effect on the operations of the entity.
(iii) Inquire with management concerning the entity’s policies and
procedures regarding compliance with laws and regulations.
(iv) Discuss with management the policies or procedures adopted for
identifying, evaluating and accounting for litigation claims and
assessments.
6.28 After obtaining the understanding, the internal auditor should perform
procedures to identify instances of non-compliance with those laws and
regulations where non-compliance should be considered while preparing
financial statements, specifically:
(i) Inquiring with management as to whether the entity is in compliance
with such laws and regulations.
(ii) Inspecting correspondence with the relevant licensing or regulatory
authorities.

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Significance of Compliance
6.29 The significance of compliance is:
(a) The benefits to the Industry are:
(i) Helps in compliance with legal terms and covenants and
thereby reduces penalties and charges
(ii) Increased Internal Control
(iii) Reduction of internal frauds and losses
(iv) More time available for other core activities
(v) Increases efficiency in operations
(vi) Customer satisfaction.
(b) The benefits to the stakeholder are:
(i) Ensures risk containment and safer market place
(ii) Better investor confidence
(iii) Uniform practices
(iv) Better image, hence, better value for the investor

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 Chapter 7
Risk Based Internal Audit

7.1 Every organization has certain objectives which it strives to achieve.

Organizations now-a-days exists in environment which is very turbulent and
constantly changing. So this environment can exert risks which could hamper
the organization from achieving the objectives. Risk based internal auditing
(RBIA) is the methodology which provides assurance that risks are being
managed to within the organization’s risk appetite.
7.2 Under risk based audit approach, firstly, a macro level objectives are
identified for a particular area or activity in hand. Then risks that may hamper
chances to achieve the objectives are identified and documented. Then, the
controls that are set taking care of the risks are evaluated by testing the
controls.
7.3 The primary objectives of tender procurement are effective and timely
supply at reasonable prices and in compliance with laws. There are two
elements of risks likelihood and impact. Depending upon the organization,
the risk likelihood and impact may vary accordingly.
7.4 Below mentioned table summarizes the Objectives, Risks and
Controls for a particular audit under the risk based audit approach:
Objective Risk Controls
Effective supply Not getting the Effective advertisement of
required tender tender in dailies/ news-papers/
response trade magazines.
Adequate time gap between
date of advertisement and
submission of forms.
Receiving response Adherence to vendor selection
from related party norms.
vendors Tender form captures details of
persons having controlling and
governing interest in vendor
enterprise.
Purchasing products or
services from concern in which
Technical Guide on Internal Audit of Tendering Process

employees are interested,

follow conflict of interest and
disclosure policies.
Not able to supply Analysis of vendor supply
when required capacity.
Reference check.
Check on vendors turnover
from financial statements
Provides inadequate QC checks done at time of
material/service receipt of goods.
Samples are invited before
awarding the tender.
Reasonable Awarding tender to Before any tender is
price costly vendor advertised, a realistic estimate
of the cost is prepared and
documented.
Review of overall budget,
monitoring and reasoning of
over shooting documented.
Obtained prices/qualities
competitive to prices/qualities
obtained by other procurement
functions/units, comparing
obtained or improved value for
money.
Reasons documented for
awarding to other than L1
vendor.
Payment to vendor Advance payments monitored
without receipt of and reason analysis done for
materials long pending advances.
Generation of GRN required to
process of payment.
Effective use Tendered materials Are purchase orders based on
and services not used requisitions from authorized
signatories
Appropriate Quality check
done, certificate of

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 Risk Based Internal Audit

installment/completion
received.
Order for next batch is given
only at reorder level of EOQ.
Are materials with Expiry date
used on FEFO basis (First
Expiry First Out)
Others Compliance risks Appropriate controls in place to
ensure that procurement
complies with relevant
legislations.
Human resource Employees have the necessary
constraints skills and experience to carry
out procurements efficiently.
Periodic training conducted for
employees
Records not available/ Documented record retention
Lack of audit trail policy adhered and mock
audited by departmental/
process head.

E-tendering Basic principles of All statutory, regulatory and

public procurement contractual requirements are
compromised explicitly defined, documented,
and kept up to date.
Efficient IT Spyware & Detection, prevention, and
system Unauthorized access- recovery controls to protect
Technical against malicious code and
vulnerabilities appropriate user awareness
procedures implemented.

Protection against Where the use of mobile code

malicious and mobile is authorized, the configuration
code shall ensure that the
authorized mobile code
operates according to a clearly
defined security policy, and

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Technical Guide on Internal Audit of Tendering Process

unauthorized mobile code shall

be prevented from executing
Inadequate OS Access Access to operating systems
control shall be controlled by a secure
log‐on
Procedure
The controls mentioned herein are suggestive in nature.
7.5 Suggestive ways to identify whether the documents are real or
forged:
(i) Generally, there would be spelling mistakes in commonly used words
and spellings.
(ii) They give only a PO Box number for an address, with no street
information. If there is also no phone number or email/ website
address it could be suspicious.
(iii) Editing or modifications in original document may be seem in different
ink or writing.
(iv) Verifying the credentials, such as, PAN No., Service tax No., Sales
Tax no. with its numbering logic and, if possible, with the government
database.
(v) In case of physical documents which generally arrive in office in a
cover and are folded, if they are without any mark of folding, it could
be suspicious, especially, where some pages are folded and some
are not.
7.6 Post contract deviations should be closely studied and is impact on
overall tender should be evaluated. It should be ensured that major
modifications do not wipe out the benefits of tendering process. Such
modifications should be avoided and be with approval of seniors along-with
documented reasons for the same. Strict adherence should be checked for
post tendering requirements and deviations in such requirements should,
generally, not be accepted.

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 Chapter 8
Internal Audit Checklist

8.1 A suggestive checklist to help to conduct internal audit is given

below: The checklist may be modified depending upon the tendering process
at the organization beingaudited.

General
S.No. Particulars Y N N/A
1 Adequate records are … … …
maintained throughout the
procurement process and
provide sufficient information to
enable an internal audit or
independent review.
2 There is a documented policy on … … …
decision making regarding
tender
3 Entire process of tendering is … … …
adequately and completely
documented.
4 Does the policy document … … …
stipulate action in case of
cancellation of contract.
5 Whether issues arising on … … …
previous internal audit
adequately resolved.
6 Are issues highlighted by whistle … … …
- blower relating to tendering are
adequately resolved.
Technical Guide on Internal Audit of Tendering Process

Planning the Purchase

S.No. Particulars Y N N/A
1. Appropriate approval to … … …
purchase has been obtained in
accordance with the
organizations delegation of
justify authority.
2. Advertisement is floated long … … …
before the submission date for
tenders.
3. Appropriate procedures are in … … …
place to ensure that
respondents submitting
tenders are dealt with fairly
and equitably during the tender
process.
4. An estimate of the cost of the … … …
goods/ services has been
developed and funding/
approved budget is available.
5. A Procurement Plan has been … … …
developed and the most
appropriate procurement
methodology has been
determined.
6. Market research and … … …
consultation has been
undertaken.
7. Specifications have been … … …
justify clearly defined.
8. Specification do not restrict … … …
competition, reflect bias to any
brand, or act as a barrier to the
consideration of any
alternatives and addresses
value for money
considerations.

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 Internal Audit Checklist

S.No. Particulars Y N N/A

9. A tender evaluation and probity … … …
plan has been developed.
10. A specific closing time, date … … …
and place of lodgment, has
been allocated and
communicated.
11. An evaluation committee has … … …
been established and
members are familiar with
procurement processes.
12. Procedures are in place to deal … … …
with potential conflicts of
interest.
13. Confidentiality and conflict of … … …
interest documents have been
obtained from all members of
the Evaluation Committee and
details of action taken to
manage any conflicts of
interest are recorded
14. Evaluation criteria, weightage … … …
(preferably in %) and an
evaluation methodology have
been defined.
15. Evaluation criteria have been … … …
based on the specifications.
16. Impact on environment/ … … …
Climate Change is included in
the evaluation criteria
(wherever applicable).
17. A risk assessment and … … …
mitigation plan has been
developed.
18. A contract management plan … … …
has been put in place.

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Documentation
S.No. Particulars Y N N/A
1 The RFT documentation … … …
provides all the information
necessary to enable potential
suppliers to prepare
appropriate submissions.
The RFT contains:
(a) a clear description of the … … …
goods and/or services to
be procured;
(b) all conditions for … … …
participation;
(c) details of the evaluation … … …
criteria to be used in the
assessment of tenders,
the evaluation
methodology and any
weightage to be used in
the assessment;
(d) details of the … … …
information/
documentary evidence
that should be provided
by suppliers;
(e) all other relevant terms … … …
and conditions of the
tender;
(f) details of any applicable … … …
government policies and
principles;
(g) details of the agency … … …
contact information;
(h) details of the specified … … …
closing time, date and
place of lodgment;

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 Internal Audit Checklist

S.No. Particulars Y N N/A

(i) advice on the treatment … … …
of delayed/ late tenders;
(j) advice on any pre-tender … … …
briefing sessions;
(k) pricing requirements … … …
(e.g., price to be
exclusive of GST)
including, if applicable,
any requirements in
relation to out-of-pocket
expenses.
(l) indication as to whether … … …
alternative tenders will
be considered.

Inviting Tenders
S.No. Particulars Y N N/A
1 The tender has been placed … … …
on the designated Tender
website or adequately
advertised as per documented
procedure.
2 Copies of the Request for … … …
Tender documentation have
been sent to identified
businesses (in addition to the
publication of the notice).
3 Details of businesses issued … … …
with the RFT have been
recorded.
4 RFT documentation has been … … …
made available electronically.
5 Sufficient time has been … … …
provided to allow the
preparation of tenders.

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S.No. Particulars Y N N/A

6 If addendum were issued, it … … …
was issued to all suppliers
who were issued with the RFT
documentation.
7 All potential suppliers to whom … … …
addendum were issued were
requested to confirm receipt of
the addenda.
8 If addendum were issued, … … …
sufficient time was provided to
allow vendors to amend their
tender.
9 Any extension of the time limit … … …
for suppliers to respond was
applied equally to all suppliers.

Receiving Tenders
S.No. Particulars Y N N/A
1 Fair and impartial procedures … … …
were in place in relation to
opening of tenders.
(a) A secure facility for the … … …
receipt of tenders has been
provided at the designated
tender submission location.
(b) The tender documentation … … …
was not opened until after the
notified closing time of the
tender.
(c) Tenders were opened in the … … …
presence of at least three
officers, including two senior
officers of the Agency.
(d) All tenders received were … … …
clearly identified and recorded.

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S.No. Particulars Y N N/A

(e) The vendors signed all … … …
tender forms and tender
schedule pages in the
appropriate manner as
required in the RFT.
2 The procedures for any … … …
delayed/ late tenders have
been followed.
3 Check done to ensure fees for … … …
application form is received
from all vendors participating.
4 Where potential suppliers have … … …
been provided with an
opportunity to correct
unintentional errors of form
between the opening of
submissions and any decision,
the same opportunity was
provided to all participating
potential suppliers.
5 Vendors were advised that … … …
their submissions were
received.
6 Information provided by … … …
persons submitting tenders is
treated as confidential.
7 Documents have been … … …
secured.

Evaluating Tenders
S.No. Particulars Y N N/A
1 Tenders are fairly and … … …
equitably evaluated in a
manner that is consistent with
the Government’s procurement
principles.

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S.No. Particulars Y N N/A

2 Mandatory tender schedules … … …
have been submitted by
vendors and checked for
compliance.
3 The evaluation criteria, … … …
weightage, and methodology
as set out in the tender
documents have been used to
evaluate the tenders.
4 The recommended vendor is … … …
an acceptable legal entity.
5 The recommended vendor has … … …
complied with the conditions of
tender.
6 If a tender is being considered … … …
further, any vendor’s
qualifications, documentation
departures, commercial
conditions, or comments
requiring clarification have
been noted for resolution.
7 The reasons for not accepting … … …
any tender have been
documented on file and are
clear and justifiable (e.g.
tender substantially
not conforming; specified QA
requirements not met; vendor
has insufficient expertise).
8 The contract is being awarded
to the supplier who:
(a) satisfies the conditions … … …
for participation; and
(b) is fully capable of … … …
undertaking the contract;
and

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S.No. Particulars Y N N/A

(c) criteria relating to whose … … …
submission is
determined to be the
lowest price, the best
value, or the most
advantageous in
accordance with the
essential requirements
and evaluation criteria
specified in the notice of
tender and the RFT
documentation.
9 A Tender Evaluation Report … … …
has been completed, and
signed by all members of the
Evaluation Committee.
10 Confirmation has been sought … … …
regarding the availability of
budget/funds for the actual
cost of the goods/ services.

Review Committee
8.2 At this stage, the final Evaluation Report, signed by the
Evaluation Committee, needs to be endorsed by the Review Committee prior
to advice being provided to suppliers on the outcome of the process and
before negotiations with the preferred supplier or the contract is awarded

Accepting Successful Tender, Finalising Contract

and Unsuccessful Tenders
S.No. Particulars Y N N/A
1 A submission was made to the … … …
Review Committee, using the
appropriate forms, seeking
endorsement of the
procurement process.

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S.No. Particulars Y N N/A

2 The Review Committee … … …
endorsed the process used in
the procurement.
3 The recommendation of the … … …
Evaluation Committee has
been approved by the
appropriate delegated
authority (e.g. Secretary,
Deputy Secretary).
4 The successful and … … …
unsuccessful vendors have
been advised of the outcome
of the tender.
5 Documents are stored as per … … …
record retention policy
applicable to the enterprise.
6 Was actual expenditure in line … … …
with the amount of contract
entered after tendering.

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 Chapter 9
Pitfalls in Tendering Process

9.1 For a Power Industry, the scope included design, engineering,

supply, installation, etc. As per the tender requirements, bidders were
required to furnish their detailed design and engineering proposal to suit the
requirements of the PSU. The PSU while being aware of the above fact, still
invited offers in a single bid format, i.e. only techno-financial bids were
invited in a single envelope. When the scope of work includes design,
engineering, etc., it is always desirable and advisable to invite offers in a
two-bid format or two envelopes, i.e., technical and financial so as to properly
evaluate the various options and design philosophy proposed by the various
bidders and the price bids of only such bidders whose design and other
technical proposals are as per tender requirements should be opened.
9.2 One construction PSU was awarded an offsite area work of a power
plant costing ` 31 crores. While going in for a pretender tie up, they invited
offers from two arbitrarily chosen firms, M/s A and M/s B. M/s B became the
lowest. The PSU then re-invited the bids from these two firms after deleting
two items, i.e., structural steel and sheeting. This time the inter-se seniority
changed and M/s A became the L-1. Again a revised bid for the third time
was invited only from M/s A after adding 1 item of sheeting. M/s A in their
revised bid not only quoted higher rates for sheeting, but also increased their
rates for other items also. Thus, the total pre-tender tie up was entered into
in a non transparent, unfair manner resulting in undue benefit to only one
contractor.
9.3 In this case, the original price bid of L1 bidder was checked and it
was found that a stamp was put on each page of the price bid, which
contained date of opening and signatures of the members of the Tender
Opening Committee. However, the column for the number of corrections was
kept blank and the number of corrections was not mentioned, thereby giving
a chance for manipulation in the price bid at a later stage.
9.4 In another project of a Power Sector PSU, the covering letter of the
price bid of one of the bidders to whom the work was finally awarded was
having a list of all the documents enclosed in the bid. However, in the same
bid, a letter indicating a discount was also enclosed but this letter was not
having any mention on the first page of the price bid which was containing
Technical Guide on Internal Audit of Tendering Process

the list of all the enclosures. Incidentally, this bidder could become L1 only
after considering the discount as per this letter, which leaves enough room
for suspicion that the discount letter might have been added at a later stage.
9.5 As per the notified qualification criteria for a housing project costing
` 13 crores, bidders were required to have experience in housing project.
Four bidders were qualified. Two bidders M/s A and M/s B were qualified on
the basis of their experience in the construction of hospital building and office
building respectively. Remaining two bidders M/s C and D were qualified on
the basis of their experience in the construction for private firms. Without
verifying the credentials, M/s D was awarded the work.
The organization should have re-invited the bids with relaxed criteria so that
contractors having experience in other type of multi-storied buildings could
have also participated. Further, the organization as a matter of policy should
verify the credentials and obtain the TDS certificate from the clients for non
government works.
9.6 Pre-qualification criteria for a power project costing ` 220 crores was
not made exhaustive. Minimum value of work completed by the bidder in
support of their past experience was not stipulated. Five reputed and large
firms having experience in power projects were excluded from participation
on flimsy ground of executing small value works. Since, no minimum value of
work was mentioned, this ground of exclusion of these firms was totally
unfair. Out of the two firms qualified, one firm PSU ‘B’ was having experience
of the work costing only ` 31.00 crores. If the same yard stick was applied
uniformly, other excluded firms also would have qualified.
The second firm ‘S’ which ultimately became L-1 was qualified on the basis
of work in progress against the requirement of completed work. Thus, on one
hand eligible firms were disqualified an ineligible firm was qualified on other
hand. There appeared to be hardly any competition. The quoted rates of PSU
‘B’ was unreasonably high (Rs.320Crores) as against the L-1’s rates (Rs.
220 crores) clearly indicating its role as a supporting firm only.
9.7 In this case, a PSU issued amended the Qualification Criteria through
a corrigendum in such a way that suited a particular firm, i.e., the successful
bidder. Normally, the offered equipments are required to have a proven
performance for a certain period say two years or one year on the date of
opening of the bid. But in this case, the amended qualification criteria did not
specify any period and rather envisaged that the equipment should be in
satisfactory operation as on the date of bid opening. This requirement was
fulfilled by the said firm based on a user certificate stating that the offered

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equipments were working satisfactorily since November 2000 as against the

bid opening date of 4.6.2001. Incidentally, the original Qualification Criteria
envisaged a specific technology based equipment having satisfactory
operation for at least two years as on the date of opening of bids. The period
of successful operation of the equipment was deliberately not specified in the
amended qualification criteria to suit a particular firm.
9.8 In Road contracts, a condition was stipulated that entire quantity of
bitumen to be used in the work shall be brought by the contractor before
commencement of work. At the same time, under escalation clause, it was
mentioned that the difference between the actual purchase rate and
stipulated rate (for issue of Bitumen by the Department) as and when the
Bitumen brought by the contractor shall be paid to the contractor. The two
stipulations were ambiguous. But the latter was operated to the benefit of
contractor to the tune of ` 1.5 crores on account of escalation in the price of
bitumen.
9.9 In a Railway project, the tender documents were issued to all the
applicants without checking the criteria of selection specified in tender notice.
This resulted in opening of price bids of ineligible applicants also.
Subsequently, the work was awarded to an ineligible contractor on the
pretext of being the lowest. The same resulted in inordinate delay and
rescission of the contract.
9.10 One Government Department awarded the work to a PSU and the
above PSU in turn awarded the work to a contractor (without inviting tender)
at 5% lower than the tendered amount accepted by the Govt. Department. In
the above illustration, following irregularities were observed – (i) The Govt.
Department awarded the work at higher rates; (ii) Govt. Department allowed
the PSU to sublet the contract against the provisions in the agreement; and
(iii) The PSU awarded the work without call of tenders to a favorite
contractor.
9.11 In a hydel work, insurance for flood was not obtained by the
contractor even though specific provision exists in the agreement resulting in
large saving to the contractor. During execution, flood occurred resulting in
huge loss to the department that could not be recovered from the contractor.
9.12 In one of the works being executed by a PSU, no provision was made
for issue of machinery to the contractor. On contractor’s failure to deploy the
required machinery, the machinery was issued by the Department and hire
charges were fixed at a much lesser rate than the prevailing market rates
resulting in undue advantage to the contractor.

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9.13 In one work, the contract was rescinded due to delay on the part of
the contractor in completion of building. The work was awarded to another
contractor on single tender basis with additional liability of approx. ` 44.0
lakhs. No action was taken by the department to encash the various bank
guarantees to recover the additional liability from the defaulting contractor
resulting in undue favor to the contractor.
9.14 In one building work, RCC structure was substituted with structural
steel and pre-cast slab and the requirement was justified by showing urgency
in completion. The extra cost on account of substitution was ` 1.00 crore
(approx.) but the work could not be completed in the revised period of
completion. Thus, the substitution was aimed to favor the contractor.

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 Appendix 1
No. 008/CRD/013
Government of India
Central Vigilance Commission

Satarkta Bhawan, Block-A,

GPO Complex, INA,
New Delhi-110023.
Dated: 18/5/09

Circular No. 10/5/09

Subject: Adoption of Integrity Pact-Standard Operating Procedure- reg.

The Commission has formulated "Standard Operating Procedure" for adoption of
Integrity Pact in major Govt. Department/organizations. A copy of the same is
enclosed for information and necessary action.

Sd/-
(Shalini Darbari)
Director
All Chief Vigilance Officers
NOTE: SECTION 6.02 (i) & 6.02 (ii) OF THE SOP ON INTEGRITY PACT HAS
BEEN DELETED WITH CIRCULAR No. 31/08/10 DATED 13.8.10.
Technical Guide on Internal Audit of Tendering Process

Subject: - Adoption of Integrity Pact -Standard Operating Procedure-reg.

1.0 Background
1.01 The Central Vigilance Commission has been promoting Integrity,
transparency, equity and competitiveness in Government/PSU transactions and
as a part of vigilance administration and superintendence. Public procurement is
a major area of concern for the Central Vigilance Commission and various steps
have been taken to put proper systems in place. Leveraging technology,
especially wider use of the web sites for disseminating information on tenders,
clearly defining the pre qualification criteria and other terms and conditions of the
tender are some of the steps recently taken at the instance of the Commission.
In this context, Integrity Pact (IP), a vigilance tool conceptualized and promoted
by the Transparency International, has been found to be useful. The Commission
has, through its Office Orders No. 41/12/07 dated 04.12.07 and 43/12/07 dated
28.12.07 and Circulars No. 18/05/08 dated 19.05.08 and 24.08.08 dated
05.08.2008 (copies appended), recommended adoption of Integrity Pact and
provided basic guidelines for its implementation in respect of major procurements
in the Government Organizations.
2.0 Integrity Pact
2.01 The pact essentially envisages an agreement between the prospective
vendors/bidders and the buyer, committing the persons/officials of both sides, not
to resort to any corrupt practices in any aspect/stage of the contract. Only those
vendors/bidders, who commit themselves to such a Pact with the buyer, would
be considered competent to participate in the bidding process. In other words,
entering into this Pact would be a preliminary qualification. The essential
ingredients of the Pact include:
Promise on the part of the principal not to seek or accept any benefit, which is
not legally available;
Principal to treat all bidders with equity and reason;
• Promise on the part of bidders not to offer any benefit to the employees
of the Principal not available legally;
• Bidders not to enter into any undisclosed agreement or understanding
with other bidders with respect to prices, specifications, certifications,
subsidiary contracts, etc.
• Bidders not to pass any information provided by Principal as part of
business relationship to others and not to commit any offence under PC/
IPC Act;

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• Foreign bidders to disclose the name and address of agents and

representatives in India and Indian Bidders to disclose their foreign
principals or associates;
• Bidders to disclose the payments to be made by them to agents / brokers
or any other intermediary.
• Bidders to disclose any transgressions with any other company that may
impinge on the anti corruption principle.
2.02 Integrity Pact, in respect of a particular contract, would be operative from
the stage of invitation of bids till the final completion of the contract. Any violation
of the same would entail disqualification of the bidders and exclusion from future
business dealings.
3.0 Implementation procedure:
3.01 Adoption of IP is voluntary for any organization, but once adopted, it
should cover all tenders /procurements above a specified threshold value.
3.02 The threshold value for the contracts to be covered through IP should be
decided after conducting proper ABC analysis and should be fixed so as to cover
90-95% of the total procurements of the organization in monetary terms.
3.03 Apart from all high value contracts, any contract involving complicated or
serious issues could be brought within the ambit of IP, after a considered
decision of the management
3.04 The Purchase / procurement wing of the organization would be the focal
point for the implementation of IP.
3.05 The Vigilance Department would be responsible for review, enforcement,
and reporting on all related vigilance issues.
3.06 It has to be ensured, through an appropriate provision in the contract,
that IP is deemed as part of the contract so that the parties concerned are bound
by its provisions.
3.07 IP should cover all phases of the contract, i.e. from the stage of Notice
Inviting Tender (NIT)/pre-bid stage till the conclusion of the contract, i.e. the final
payment or the duration of warranty/guarantee.
3.08 IP would be implemented through a panel of Independent External
Monitors (IEMs), appointed by the organization. The IEM would review
independently and objectively, whether and to what extent parties have complied
with their obligations under the Pact.

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3.09 Periodical Vendors' meets, as a familiarization and confidence building

measure, would be desirable for a wider and realistic compliance of the
principles of IP.
3.10 Information relating to tenders in progress and under finalization would
need to be shared with the IEMs on monthly basis.
4.0 Role/ Functions of IEMs:
4.01 IEM would have access to all Contract documents, whenever required.
Ideally, all IEMs of an organization should meet in two months to take stock of
the ongoing tendering processes.
4.02. It would be desirable to have structured meeting of the IEMs with the
Chief Executive of the organization on a monthly basis to discuss/review the
information on tenders awarded in the previous month.
4.03 The IEMs would examine all complaints received by them and give their
recommendations/views to the Chief Executive of the organization, at the
earliest. They may also send their report directly to the CVO and the
Commission, in case of suspicion of serious irregularities requiring
legal/administrative action.
4.04 At least one IEM should be invariably cited in the NIT. However, for
ensuring the desired transparency and objectivity in dealing with the complaints
arising out of any tendering process, the matter should be examined by the full
panel of IEMs, who would look into the records, conduct an investigation, and
submit their joint recommendations to the Management
4.05 The recommendations of IEMs would be in the nature of advice and
would not be legally binding. At the same time, it must be understood that IEMs
are not consultants to the Management. Their role is independent in nature and
the advice once tendered would not be subject to review at the request of the
organization.
4.06 The role of the CVO of the organization shall remain unaffected by the
presence of IEMs. A matter being examined by the IEMs can be separately
investigated by the CVO in terms of the provisions of the CVC Act or Vigilance
Manual, if a complaint is received by him or directed to him by the Commission.
5.0 Appointment of IEMs
5.01 The IEMs appointed should be eminent personalities of high integrity and
reputation. The Commission would approve the names of IEMs out of the panel
of names, initiated by the organization concerned, in association/consultation
with the CVO.

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5.02 While forwarding the panel, the organization would enclose detailed bio-
data in respect of all names proposed. The details would include postings before
superannuation, special achievements, experience, etc., in Government sector. It
is desirable that the persons proposed possess domain experience of the PSU
activities or the relevant field with which they may be required to deal.
5.03 A maximum of three IEMs would be appointed for Navratna PSUs and up
to two IEMs for others.
5.04 Organizations could propose a panel of more than three names for the
consideration of the Commission.
5.05 Persons appointed as IEMs in two organizations would not be
considered for a third organization.
5.06 For PSUs having a large territorial spread or those having several
subsidiaries, there could be more IEMs, but not more than two IEMs would be
assigned to one subsidiary.
5.07 Remuneration payable to the IEMs would be equivalent to that
admissible to an Independent Director in the organization. This remuneration
would be paid by the organization concerned.
5.08 The terms and conditions of appointment, including the remuneration
payable to the IEMs, should not be included in the Integrity Pact or the NIT. They
could be communicated individually to the IEMs concerned.
5.09 The normal term of appointment for an IEM would be 3 years, and it
would be subject to renewal by the Commission thereafter.
6.0 Review System:
6.01 An internal assessment of the impact of IP shall be carried out
periodically by the CVOs of the organizations and reported to the Commission.
6.02 Two additional reviews are envisaged for each organization in due
course.
(i) Financial impact review, which could be conducted through an
independent agency like auditors, and
(ii) Physical review, which could be done through an NGO of tested
credibility in the particular field.
6.03 It is proposed to include the progress in the implementation of IP in the
Annual Report of the Commission. CVOs of all organizations would keep the
Commission posted with the implementation status through their monthly reports
or special reports, wherever necessary.

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7.0 All organizations are called upon to make sincere and sustained
efforts to imbibe the spirit and principles of the Integrity Pact and carry it to
its effective implementation.
Enclosures: All earlier guidelines, issued by the Central Vigilance Commission,
on the subject.
******
No.007/VGL/033
Government of India
Central Vigilance Commission
Satarkta Bhawan, Block-A
GPO complex, INA,
New Delhi-110023
Dated the 4th December 2007
Office Order No.41/12/07
Subject: Adoption of Integrity Pact in major Government Procurement
Activities- regarding.
1. Ensuring transparency, equity and competitiveness in public
procurement has been a major concern of the Central Vigilance Commission and
various steps have been taken by it to bring this about. Leveraging technology
specially wider use of the web-sites for disseminating information on tenders,
tightly defining the pre-qualification criteria and other terms and conditions of the
tender are some of the steps recently taken at the instance of the Commission in
order to bring about greater transparency and competition in the
procurement/award of tender.
2. In this context, Integrity Pact, a vigilance tool first promoted by the
Transparency International, has been found to be useful. The Pact essentially
envisages an agreement between the prospective vendors/bidders and the buyer
committing the persons/officials of both the parties, not to exercise any corrupt
influence on any aspect of the contract. Only those vendors/bidders who have
entered into such an Integrity Pact with the buyer would be competent to
participate in the bidding. In other words, entering into this Pact would be a
preliminary qualification. The Integrity Pact in respect of a particular contract
would be effective from the stage of invitation of bids till the complete execution
of the contract.
3. The Integrity Pact envisages a panel of Independent External Monitors
(IEMs) approved for the organization. The IEM is to review independently and

96
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objectively, whether and to what extent parties have complied with their
obligations under the Pact. He has right of access to all project documentation.
The Monitor may examine any complaint received by him and submit a report to
the Chief Executive of the organization, at the earliest. He may also submit a
report directly to the CVO and the Commission, in case of suspicion of serious
irregularities attracting the provisions of the PC Act. However, even though a
contract may be covered by an Integrity Pact, the Central Vigilance Commission
may, at its discretion, have any complaint received by it relating to such a
contract, investigated.
4. The Commission would recommend the Integrity Pact concept and
encourage its adoption and implementation in respect of all major procurements
of the Govt. organizations. As it is necessary that the Monitors appointed should
be of high integrity and reputation, it has been decided that the Commission
would approve the names of the persons to be included in the panel. The
Government Organizations are, therefore, required to submit a panel of names of
eminent persons of high integrity and repute and experience in the relevant field,
through their administrative Ministry, for consideration and approval by the
Commission as Independent External Monitors. The terms and conditions
including the remuneration payable to the Monitors need not be a part of the
Integrity Pact and the same could be separately communicated. It has also to be
ensured by an appropriate provision in the contract, that the Integrity Pact is
deemed as part of the contract in order to ensure that the parties are bound by
the recommendation of the IEMs, in case any complaint relating to the contract,
is found substantiated.
5. A copy of the Integrity Pact, which the SAIL got vetted by the Addl.
Solicitor General is available on the Commission's web-site i.e. www.cvc.nic.in
as an attachment to this Office Order in downloadable form, which may be used
in original or may be suitably modified in order to meet the individual
organization's requirements.
Sd/-
(Vineet Mathur)
Deputy Secretary
All Secretaries to the Govt. of India
All CMDs of PSUs All CMDs of PSBs
All CVOs

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Steel Authority of India Limited (SAIL) hereinafter referred to as "The Principal".

And
hereinafter referred to as "The Bidder/Contractor"
Preamble
The Principal intends to award, under laid down organizational procedures,
contract/s for ___________The Principal values full compliance with all relevant
laws of the land, rules, regulations, economic use of resources and of
fairness/transparency in its relations with its Bidder(s) and /or Contractor(s).
In order to achieve these goals, the Principal will appoint an Independent
External Monitor (IEM), who will monitor the tender process and the execution of
the contract for compliance with the principles mentioned above.
Section 1: Commitments of the Principal
1. The Principal commits itself to take all measures necessary to prevent
corruption and to observe the following principles:
a. No employee of the Principal, personally or through family members, will
in connection with the tender for, or the execution of a contract, demand,
take a promise for or accept, for self or third person, any material or
immaterial benefit which the person is not legally entitled to.
b. The Principal will during the tender process treat all Bidder(s) with equity
and reason. The Principal will in particular, before and during the tender
process, provide to all Bidder(s) the same information and will not
provide to any Bidder(s) confidential/additional information through which
the Bidder(s) could obtain an advantage in relation to the process or the
contract execution.
c. The Principal will exclude from the process all known prejudiced persons.
2. If the Principal obtains information on the conduct of any of its employees
which is a criminal offence under the IPC/PC Act, or it there is a substantive
suspicion in this regard, the Principal will inform the Chief Vigilance Officer and in
addition can initiate disciplinary actions.
Section2: Commitments of the Bidder(s)/ Contractor(s)
1. The Bidder(s)/Contractor(s) commit himself to take all measures
necessary to prevent corruption. He commits himself to observe the following
principles during his participation in the tender process and during the contract
execution.

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a. The Bidder(s) / contractor(s) will not, directly or through any other

persons or firm, offer promise or give to any of the Principal's employees
involved in the tender process or the execution of the contract or to any
third person any material or other benefit which he/she is not legally
entitled to, in order to obtain in exchange any advantage or during the
execution of the contract.
b. The Bidder(s)/Contractor(s) will not enter with other Bidders into any
undisclosed agreement or understanding, whether formal or informal.
This applies in particular to prices, specifications, certifications,
subsidiary contracts, submission or non submission of bids or any other
actions to restrict competitiveness or to introduce cartelization in the
bidding process.
c. The Bidder(s)/Contractor(s) will not commit any offence under the
relevant IPC/PC Act; further the Bidder(s) /Contractors will not use
improperly, for purposes of competition or personal gain, or pass on to
others, any information or document provided by the Principal as part of
the business relationship, regarding plans, technical proposals and
business details, including information contained or transmitted
electronically.
d. The Bidder(s)/Contractor(s) of foreign origin shall disclose the name and
address of the Agents/representatives in India, if any. Similarly, the
bidder(s)/contractor(s) of Indian Nationality shall furnish the name and
address of the foreign principals, if any. Further details as mentioned in
the "Guidelines on Indian Agents of Foreign Suppliers" shall be disclosed
by the Bidder(s)/Contractor(s). Further, as mentioned in the Guidelines
all the payments made to the Indian agent/representative have to be in
Indian Rupees only.
e. The Bidder(s)/Contractor(s) will, when presenting his bid, disclose any
and all payments he has made, is committed to or intends to make to
agents, brokers or any other intermediaries in connection with the award
of the contract.
2. The Bidder(s)/Contractor(s) will not instigate third persons to commit
offences outlined above or be an accessory to such offences.
Section 3: Disqualification from tender process and exclusion from future
contracts
If the Bidder(s)/Contractor(s), before award or during execution has committed a
transgression through a violation of Section 2, above or in any other form such

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as to put his reliability or credibility in question, the Principal is entitled to

disqualify the Bidder(s)/Contractor(s) from the tender process or take action as
per the procedure mentioned in the "Guidelines on Banning of business
dealings".
Section 4: Compensation for Damages
1. If the Principal has disqualified the Bidder(s) from the tender process
prior to the award according to Section 3, the Principal is entitled to demand and
recover the damages equivalent to Earnest Money Deposit/Bid Security.
2. If the Principal has terminated the contract according to Section 3, or if
the Principal is entitled to terminated the contract according to Section 3, the
Principal shall be entitled to demand and recover from the Contractor liquidated
damages of the Contract value or the amount equivalent to Performance Bank
Guarantee.
Section 5: Previous Transgression
1. The Bidder declares that no previous transgressions occurred in the last
three years with any other company in any country conforming to the anti
corruption approach or with any other public sector enterprise in India that could
justify his exclusion from the tender process.
2. If the bidder makes incorrect statement on this subject, he can be
disqualified from the tender process for action can be taken as per the procedure
mentioned in "Guidelines on Banning of business dealings".
Section 6: Equal treatment of all Bidders/Contractors/Subcontractors.
1. The Bidder(s)/Contractor(s) undertake(s) to demand from all
subcontractors a commitment in conformity with this Integrity Pact, and to submit
it to the Principal before contract signing.
2. The Principal will enter into agreements with identical conditions as this
one with all bidders, contractors and subcontractors.
3. The Principal will disqualify from the tender process all bidders who do
not sign this Pact or violate its provisions.
Section 7: Criminal charges against violation Bidder(s)/ Contractor(s)/Sub
contractor(s).
If the Principal obtains knowledge of conduct of a Bidder, Contractor or
Subcontractor, or of an employee or a representative or an associate of a Bidder,
Contractor or Subcontractor which constitutes corruption, or if the Principal has

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substantive suspicion in this regard, the Principal will inform the same to the
Chief Vigilance Officer.
Section 8: Independent External Monitor/Monitors
1. The Principal appoints competent and credible Independent External
Monitor for this Pact. The task of the Monitor is to review independently and
objectively, whether and to what extent the parties comply with the obligations
under this agreement.
2. The Monitor is not subject to instructions by the representatives of the
parties and performs his functions neutrally and independently. He reports to the
Chairman, SAIL.
3. The Bidder(s)/Contractor(s) accepts that the Monitor has the right to
access without restriction to all project documentation of the Principal including
that provided by the Contractor. The Contractor will also grant the Monitor, upon
his request and demonstration of a valid interest, unrestricted and unconditional
access to his project documentation. The same is applicable to Subcontractors.
The Monitor is under contractual obligation to treat the information and
documents of the Bidder(s)/Contractor(s)/Subcontractor(s) with confidentiality.
4. The Principal will provide to the Monitor sufficient information about all
meetings among the parties related to the Project provided such meetings could
have an impact on the contractual relations between the Principal and the
Contractor. The parties offer to the Monitor the option to participate in such
meetings.
As soon as the Monitor notices, or believes to notice, a violation of this
agreement, he will so inform the Management of the Principal and request the
Management to discontinue or take corrective action, or to take other relevant
action. The monitor can in this regard submit non-binding recommendations.
Beyond this, the Monitor has no right to demand from the parties that they act in
a specific manner, refrain from action or tolerate action.
The Monitor will submit a written report to the Chairman, SAIL within 8 to 10
weeks from the date of reference or intimation to him by the Principal and, should
the occasion arise, submit proposals for correcting problematic situations.
Monitor shall be entitle to compensation on the same terms as being extended
to/ provided to Independent Directors on the SAIL Board.
If the Monitor has reported to the Chairman SAIL, a substantiated suspicion of an
offence under relevant IPC/PC Act, and the Chairman SAIL has not, within the
reasonable time taken visible action to proceed against such offence or reported

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it to the Chief Vigilance Officer, the Monitor may also transmit this information
directly to the Central Vigilance Commissioner.
The word 'Monitor' would include both singular and plural.
Section 9 - Pact Duration
This pact begins when both parties have legally signed it. It expires for the
Contractor 10 months after the last payment under the contract, and for all other
Bidders & months ---- the contract has been awarded.
If any claim is made / lodged during this time, the same shall be binding and
continue to be valid despite the lapse of this pact as specified above, unless it is
discharged / determined by Chairman of SAIL.
Section 10 - Other provisions
This agreement is subject to Indian Law, Place of performance and jurisdiction is
the Registered Office of the Principal, i.e. New Delhi.
Changes and supplements as well as termination notices need to be made in
writing. Side agreements have not been made.
If the Contractor is a partnership or a consortium, this agreement must be signed
by all partners or consortium members.
Should one or several provisions of this agreement turn out to be invalid, the
remainder of this agreement remains valid. In this case, the parties will strive to
come to an agreement to their original intentions.

_____________________________ ____________________________
(For & on behalf of the Principal) (For & On behalf of Bidder/ Contractor)
(Office Seal) (Office Seal)

Place ------------------
Date ------------------

Witness 1:
(Name & Address) _______________________

Witness 2:
(Name & Address)_______________________

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No.007/VGL/033
Government of India
Central Vigilance Commission
Satarkta Bhawan, Block-A
GPO complex, INA,
New Delhi-110023
Dated the 28th December 2007
Office Order No.43/12/07
Subject: Adoption of Integrity Pact in major Government Procurement
Activities- regarding.
Reference is invited to Commission's office order no. 41/12/2007 circulated vide
letter of even no. dated 4/12/2007 on the aforementioned subject.
2. The Commission vide Para 4 of the aforementioned office order had
directed that the organizations were required to forward a panel of names of the
eminent persons of high integrity through their administrative ministries for
consideration and approval by the Commission as IEMs.
3. The matter has been reconsidered by the Commission and in order to
simplify the procedure and avoid delay, it has been decided that the
organizations may forward the panel of names of eminent persons for
appointment and consideration as IEMs directly to the Commission for approval.
4. Para 4 of the Commission's circular cited above stands amended to this
extent.
Sd/-
(Vineet Mathur)
Deputy Secretary
All Chief Vigilance officers

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No. 008VGL/001
Government of India
Central Vigilance Commission
Satarkta Bhawan, Block-A
GPO complex, INA,
New Delhi-110023
Dated, the 19th May, 2008
Circular No.18/05/08
Sub: - Adoption of Integrity Pact in major Government Procurement
Activities- regarding.
The Commission vide its office order no. 41/12/07 dated 4/12/07 had circulated a
letter no. 007/vgl/033 emphasizing the need to adopt Integrity Pact (IP) by
government organizations in respect of their major procurement activities. The
Commission had also directed that in order to ensure compliance with the
obligations under the pact by the parties concerned, Independent External
Monitors (IEMs) are to be appointed after obtaining approval of the Commission
for the names to be included in the panel.
2. As the role of IEMs is very important in ensuring implementation of the
IP, it is necessary that the persons recommended for appointment have
adequate experience in the relevant fields and are of high integrity and
reputation.
3. The Commission would, therefore, direct that the organizations, while
forwarding the names of the persons for empanelment as IEMs should sent a
detailed bio-data in respect of the each of the persons proposed. The bio-data
should, among other things, include the postings during the last ten years before
the superannuation of the persons proposed as IEMs, in case the names relate
to persons having worked in the government sector. The bio-data should also
include details regarding experience older than ten years before superannuation
of the persons proposed as IEMs, if they have relevant domain experience in the
activities of PSUs where they are considered as IEMs.
This may be noted for future compliance.
Sd/-
(Rajiv Verma)
Under Secretary
All Chief Vigilance Officers

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No. 007/VGL/033
Government of India
Central Vigilance Commission
Satarkta Bhawan, Block-A
GPO complex, INA,
New Delhi-110023
Dated the 5th August 2008
Circular No.24/8/08
Subject: - Adoption of Integrity Pact in major Government procurement
activities.
The Commission, vide its Circulars No. 41/12/07, dated 4.12.07 and 18/5/08
dated 19.5.08, has emphasized the necessity to adopt Integrity Pact (IP) in
Government organizations in their major procurement activities. The Commission
had also directed that in order to oversee the compliance of obligations under the
Pact, by the parties concerned, Independent External Monitors (IEMs) should be
nominated with the approval of the Commission, out of a panel of names
proposed by an Organization.
2. As more and more organizations begin to adopt the Integrity Pact,
several queries and operational issues have been raised. The Commission has
examined these issues and suggested the following guidelines:
i. Adoption of Integrity Pact in an organization is voluntary, but once
adopted, it should cover all tenders/procurements above a specified
threshold value, which should be set by the organization itself.
ii. IP should cover all phases of the contract i.e., from the stage of Notice
Inviting Tender(NIT)/pre-bid stage to the stage of last payment or a still
later stage, covered through warranty, guarantee etc.
iii. IEMs are vital to the implementation of IP and at least one IEM should be
invariably cited in the NIT. However, for ensuring the desired
transparency and objectivity in dealing with the complaints arising out of
any tendering process, the matter should be referred to the full panel of
IEMs, who would examine the records, conduct the investigation and
submit a report to the management, giving joint findings.
iv. A maximum of three IEMs would be appointed in Navratna PSUs and
upto two IEMs in other Public Sector Undertakings. The organizations
may, however, forward a panel of more than three names for the
Commission's approval. For the PSUs having a large territorial spread or

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those having several subsidiaries, the Commission may consider

approving a large number of IEMs, but not more than two IEMs would be
assigned to any one subsidiary.
v. Remuneration payable to the IEMs may be similar to the Independent
Directors in the organization.
vi. In view of limited procurement activities in the Public Sector Banks,
Insurance Companies and Financial Institution, they are exempted from
adopting IP.
3. It needs no reiteration that all organizations must make sustained efforts
to realize the spirit and objective of the Integrity Pact. For further clarifications on
its implementation or the role of IEMs, all concerned are advised to approach the
Commission.
Sd/-
(Rajiv Verma)
Under Secretary
All CVOs

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Technical Guide on Internal Audit of Tendering Process

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