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TCS cries foul as ESIC awards Rs1,200 crore contract to Wipro

TCS cries foul as ESIC awards Rs1,200 crore contract to Wipro
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First Published: Tue, Feb 24 2009. 11 05 PM IST

Up in arms: A Tata Consultancy Services office building in Noida. A senior TCS executive insists that his company was told verbally that its bid was rejected because it did not include service tax. Ha
Up in arms: A Tata Consultancy Services office building in Noida. A senior TCS executive insists that his company was told verbally that its bid was rejected because it did not include service tax. Ha
Updated: Tue, Feb 24 2009. 11 05 PM IST
New Delhi: India’s biggest software services firm by revenues, Tata Consultancy Services Ltd, or TCS, has complained to the government on how a Rs1,200 crore contract was awarded to rival Wipro Ltd by the Employees’ State Insurance Corporation, or ESIC.
Up in arms: A Tata Consultancy Services office building in Noida. A senior TCS executive insists that his company was told verbally that its bid was rejected because it did not include service tax. Harikrishna Katragadda / Mint
ESIC, a Union government agency that provides health insurance to at least 10 million workers in the country, had invited bids for a project known as Panchdeep. Conceived about four years ago, the project is designed to streamline registration filings and payouts at ESIC’s 144 hospitals and 50 regional centres.
TCS was one of the three bidders to the contract, which is the biggest software purchase involving the exchequer. Wipro was selected winner by ESIC on the basis of the lowest bid, in a second round of the tender process earlier this month. The two tenders were called within a span of three months after the first round was rejected on grounds of “defective” submissions by the parties, according to ESIC.
Panchdeep is to be executed on a so-called BOOT (short for built, own, operate and transfer) model, which will require all assets to be transferred to the insurance agency, after 18 months to set up the infrastructure and systems and five years of running it.
The corporation will pay the selected vendor in 20 equal instalments each quarter from the date Panchdeep starts running as per bid terms.
The first tender was floated on 24 October and financial bids were opened on 19 November. TCS, which offered to execute the project for Rs1,677 crore, was the lowest bidder compared with a Rs1,890 crore quote by Wipro and a Rs2,100 crore bid made by Infosys Technologies Ltd.
ESIC decided to cancel that tender round because, according to a corporation official, who did not want to be identified, the bids of Wipro and Infosys were found to be defective and the agency did not want to go with the lone bidder left, TCS, even though the Tata firm was the lowest bidder in the round.
A senior TCS executive insisted otherwise. His company was told verbally, he said, that its bid was rejected because it did not include service tax (of 12.36% on certain components of its offer). Later, when the company asked for a clarification, ESIC wrote back that all bids would have to include service tax, this executive added. The executive did not want to be identified.
TCS, which had then complained to the labour ministry into which ESIC reports, said it believed its bid then was within the terms of the tender. “ESIC is a not-for-profit government organization. Our understanding is that we don’t need to pay service tax,” said the TCS executive. “Even if (service tax was required to be paid), the onus of paying the tax would have been on us, not ESIC or the government.”
ESIC’s November decision made public details of each of the three bidders’ offers, including financial costs.
Earlier this month, when the second round tender bids were opened, Wipro emerged the lowest bidder with a quote of Rs1,181 crore—about 37% less than its previous bid, two people familiar with the tender—the TCS executive and a senior executive at a software product vendor that would have benefited from the contract—said. The second executive too wanted to remain anonymous. TCS quoted Rs1,530 crore (8.77% lower than its earlier bid) and Infosys Rs1,791 crore (14.71% less).
The Wipro offer, these two people said, did not include service tax and should not have been considered going by the reasons for the rejection of the TCS bid in November.
This was denied by Prabhat Chaturvedi, ESIC’s director general. “In the second round, the bidders have included a wide range of taxes, which included service, custom, excise, sales, VAT (value added tax, octroi and any other leviable charges under the contract,” he said.
Wipro declined to comment specifically on whether its bid included service tax. “The contract is yet to be signed... We are in talks,” said Anand Sankaran, chief executive of Wipro Infotech, the company’s division looking after the business in Asia Pacific, including India. He declined to elaborate further. Infosys said it would not comment.
Mint could not independently verify the exact status of service tax in Wipro’s bid though the opening of the bid has been recorded on video as is the practice in such tenders. At least two ESIC officials, including Chaturvedi, said the video can be provided in case of an inquiry.
Last week, TCS, which has been executing government contracts for at least three decades, wrote to Chaturvedi, besides labour minister Oscar Fernandes and Sudha Pillai, secretary in the ministry, complaining foul play, the company executive said.
“We have observed absolute transparency and strictly followed the CVC (Central Vigilance Commission) guidelines. There is not even 1% error in our tender process,” said ESIC’s Chaturvedi.
TCS’ complaints in November were without basis, he insisted. “We reported to the government and the complaints were found to be baseless,” he said.
Still, a letter has been filed with the CVC suggesting “mala fide intentions” in the selection process by a complainant who has chosen to remain anonymous with the commission. The letter pointed out that ESIC’s tender evaluation committee in the contract was composed of internal employees of the corporation and that no attempt has been made to either bring independent information technology experts or academicians.
Although this is not specified in the government’s purchase rules, it is increasingly becoming a practice while finalizing its large tenders. The Central Board of Direct Taxes (CBDT), for instance, recently finalized a contract to use Infosys as a service provider for the income-tax department’s back-office operations.
“We had an external consultant to help us with the evaluation. The committee, in turn, had people from ministry of information technology. Finance ministry’s department of expenditure also had a representative on the committee,” said a senior official in the department, who did not want to be identified.
In the recent past, TCS and Infosys have bid successfully for information technology projects the Central government has outsourced. The projects have had a common template: The service provider is asked to provide both software and hardware, and also take over non-sovereign functions that are mechanical. The projects resemble business process outsourcing work carried out in the private sector. Typically, a large part of the service provider’s revenue is linked to volume of work carried out.
The CBDT had in December received the cabinet’s approval to hand over a five-year outsourcing project valued at Rs255 crore to Infosys. The bulk of the work relating to tax filing returns that are today partly carried out by private data entry operators would be taken over by Infosys in a back office to be set up in Bangalore. Infosys would also provide the software that would allow income-tax officials to carry out data mining.
Similarly, TCS has successfully bid to implement technology projects, which aim to streamline work flow related to Registrar of Companies (RoC) and passport issuance.
A retired bureaucrat said the composition of the committee or choice of external consultant was not the main issue in the ESIC contract. “It hardly matters whether the evaluation is internal or external so long as the prescribed process and procedures are followed,” former power secretary R.V. Shahi said.
maitreyee.h@livemint.com
K. Raghu in Bangalore contributed to this story.
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First Published: Tue, Feb 24 2009. 11 05 PM IST