Para 8.2 — GOODS_MANUAL

8.3. Capital Goods/ Equipment (Machinery and Plant – M&P, IT Systems etc) Capital goods are machinery and plants (M&P), which create new fixed assets/ utility/ functionality or benefits for the organisation and have a long and useful life. This also refers to IT procurements of IT Systems (comprising one or more Hardware, Networking, tailor-made and customized Software, Installation/ Commissioning, Training, AMC/ CMC, Cloud Services, and other services). Distinctive features of procurement of Capital Goods are:

1. Since the cost is generally high, there are detailed procedures for approval of technical, administrative, and budgetary provisions – before an indent is generated. Unlike consumable items (which are procured if a non-specific budgetary provision is there), Capital Goods are procured after an item-specific Budgetary provision is included in the budget. Thus, the acquisition of Capital Goods is also an Investment decision and may require some form of investment justification. Some of the higher-value Capital Goods may be accounted for in the Capital Block of the Organization. However, these features may not apply to Capital goods of smaller values; 2. There are also alternatives to outright purchasing/ owning such equipment, like hiring/ hirepurchase/ leasing or acquiring the functionality as a service. For example, instead of buying a staff car, a monthly service/ hiring contract can be entered into to provide vehicles as per requirements. The car can also be wet leased (including maintenance), and a service contract for drivers/ cleaners can be entered into separately. This can be especially advantageous in equipment that undergo obsolescence quickly – e.g., IT equipment. 3. The procurement involves elements of Works and Services like Installation, Commissioning, Training, prolonged trials, Warranty, After-sales services like postwarranty Maintenance and assured availability of spares. All such elements have costs that may be quoted explicitly or implicitly. A suitable warranty clause should indicate the period of warranty and service levels as well as penalties for delays in the restoration of defects. Clauses for including essential initial spares for two years’ maintenance to be supplied along with equipment may be provided. If necessary, an appropriate number of years (say three to five or more years, depending on the lifespan of the equipment) AMC may be included in the procurement detailing its conditions; 4. The cost of operations, maintenance, and disposal of the equipment over its life cycle may far outweigh the initial procurement cost over the life cycle of the capital equipment. Hence, Total Cost of Ownership (TCO) becomes an important consideration – which can be addressed in Public Procurement by way of appropriate Description, specification, and Contract conditions like the inclusion of the cost of supply of initial essential spares and Net Present Value (as per NPV technique, refer para 8.5 below) of Annual Maintenance

8.2. Buy Back Offer When it is decided to replace an existing old item

(s) with a new/ better version, the Department may trade the existing old item while purchasing the new one by issuing suitable tender documents for this purpose. The condition of the old item, its location, and the mode of its handing over to the successful bidder are also to be incorporated in the tender document. Further, the bidder should be asked to quote the prices for the item (to be offered by them) with a rebate for the old item and also without any rebate (in case they do not want to lift the old item). This will provide an option for the department to either trade or not trade the old item while purchasing the new one. (Rule 176 of GFR 2017)

Contracts (AMC) for a specified number of years within the estimated cost and also the evaluation criteria of procurement contract; 5. In case the Plant and Equipment (or an IT System) consists of several machines/ components/ systems that work in tandem or if it includes services/ works to be done by a third party, an all-encompassing Turnkey contract may be a better alternative, 6. Because of the complexity of specification evaluation, the technical suitability of offers in the procurement of capital goods involves complex issues about acceptance of alternatives, deviations, and compliance with various particulars of specification. Acceptance or otherwise of alternatives should be made explicit. A statement of deviation, including the detailed justification for the deviations from each clause of specification, should be requested from the bidder in the tender documents. A schedule of Guaranteed Particulars of specification indicating the values of each parameter may be included in the Specification, where the bidder can quote the offered value of the Parameters. In complex cases, a Pre-bid conference may help in reducing disputes and complexity at the time of evaluation; 7. Experience, capacity, and financial strength of a supplier are important determinants of quality and after-sales support for capital goods; such procurements are a fit for prequalification bidding.