Online Contract Management and Electronic Bank Guarantee in the KPPP Portal

The State of Karnataka is one of the few States in India where the procurement is governed by a transparency in public procurement act also known as the KTPP Act. Since then, many rules and regulations were issued to provide clarity on implementation of the provisions of the Act. In the article, a couple of provisions related to implementation of the e-Procurement in the State (i.e., Karnataka Public Procurement Portal) are explained below. 

Adoption of Online Contract Management 

It is well known that getting users to adopt a software is a major change management exercise. The e-Government Procurement software, such as the Karnataka Public Procurement Portal (KPPP), will have several tens of thousands of procuring entity users and suppliers spread across the State of Karnataka, India and even globally. It will be quite a challenge to make the smallest of the changes to the KPPP software and getting the users to adopt the software. 

KPPP is an upgraded version of the e-Procurement software, which was open to the public from the 7th of June 2024. Earlier to that the eproc karnataka portal was in existence for more than a decade. As it is common across most of the e-Government Procurement (e-GP) systems across India, the software was used by the procuring entities until the financial bid opening and in a few cases until the contract award. Though almost all the e-GP systems implemented the contract management module more than a decade ago, this functionality was not put into widespread use. In recent years, government agencies are taking initiatives to mainstream the contract management module and enforce its adoption such that the end to end procurement cycle is fully handled online in the e-GP system. 

The Karnataka government on its part has issued a couple of government orders to expedite the adoption of contract management. Firstly, the government issued orders mandating the issuance of Letter of Intent (LOI) online in the e-GP system. Two separate orders were issued, one government order with reference FD 355 EXP-12-2024 was issued recently on the 2nd of September 2024 mandating the issuance of LoI online in the e-GP software for procurement which is not funded under the budget. A month earlier, the government issued an order FD 355 EXP-12-2024 dated 1st August 2024, re-iterating an earlier order dated 13th August 2021, advising the procuring entities to issue the LoI online and logically complete the contract award online in the e-GP system. An additional order was issued on the 9th of July 2024 mandating the use of contract management under the provisions of the KTPP Act. These initiatives demonstrate a sustained effort by the government of Karnataka to enforce the adoption of the contract management module and get to the state of handling the entire procurement process electronically. 

Adoption of Electronic Bank Guarantee 

Government agencies world-wide require bidders to provide a guarantee along with their bid, confirming their seriousness about their participation in the tendering process. This guarantee is known as the bid security or Earnest Money Deposit (EMD). Typically, the EMD is set at 1-2% of the estimated value of the contract. In a few countries and Multilateral Development Bank (MDB) procurement, the bidders are given the option to submit a bid securing declaration wherein the bidder agrees to be blacklisted if it decides later on not to execute the contract awarded to it. 

The bank guarantees are submitted in many different forms viz. Electronic cash submitted over the counter or transferred online using the inter-bank transfer mechanisms or as a guarantee submitted by the banks or insurance agencies. When the EMD is submitted as a bank guarantee, the bank stands as a guarantor agreeing to credit the guarantee amount to the procuring entity should the bidder not accept to execute the contract awarded to it. Traditionally, the bank guarantees (BG) are submitted in physical form. After the implementation of e-GP, the bidders upload a scanned copy of the guarantee in their electronic bid and either before or after the bid submission due date, they are required to submit hard copies of the BG. Many countries in the last few years have adopted electronic bank guarantee (e-BG), wherein the banks upload the BG directly to the e-GP system on behalf of the bidders. When e-BG is submitted, the bidders are not required to submit physical copies of the BG. Also, the buyers need not verify with the bank if the BG is authentic, since the e-BG is inherently authentic. Besides the bid security, e-BGs can be submitted against performance guarantee as well, which the selected bidder is required to submit after the contract has been awarded. 

Vide a circular dated 10th February 2023, the government of Karnataka has authorized the use of electronic bank guarantee for security deposits. When the use of e-BG is mainstreamed, the bidders will have another option to submit the EMD. 

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