Ms Ghulam Muhammad Vs Water and Sanitation etc

Stereo. HCJDA 38.

Judgment Sheet

IN THE LAHORE HIGH COURT, LAHORE

(JUDICIAL DEPARTMENT)

W.P. No. 31153/2020.

M/s Ghulam Muhammad and Sons.

Versus Water and Sanitation Agency (WASA), Faisalabad through its Director General, etc.

JUDGMENT

Date of hearing 09.02.2021 Advocates for Ch. Muhammad Ibrahim, Advocate. petitioner Riaz Karim Qureshi, Advocate. Mr. Saleem Ahmad Khan, Advocate. Mr. Muhammad Ahsan Bhoon, Advocate. Mr. Humayoun Rashid, Advocate.

Ch. Abdul Majid, Advocate.

Rana Shahzad Khalid, Advocate.

Ali Sufian Chan, Advocate.

Mr. Aziz-ur-Rehman Sheikh, Advocate. Mr. Shahid Iqbal Sanotra, Advocate. For respondents Sardar Qasim Hassan Khan, A.A.G. Mr. Asif Ali, Technical Advisor, Finance Department.

Mr. Arshad Nadeem, Executive Engineer, Highway, Department.

Mr. Zakir Shah, Deputy Director Legal C&W Department.

Mr. Asad-ur-Rehman, SDO Highway Pakpattan.

Mr. Muhammad Yasin, SDO, Highway Division Narowal.

Mr. Basit Ameer Bakht, SDO, Buildings Pakpattan.

Rai Mudasir Nawaz, Law Officer on behalf of Finance Department.

ASIM HAFEEZ, J. This judgment shall decide instant constitutional petition and connected petitions, - listed in annexed Schedule-A – all of which seek determination of a common question of law.

2.The question raised for determination is that whether requirement of provisioning of additional performance security, allegedly exceeding 10% of the contract amount, is sustainable in law in the wake of Rule 56 of Punjab Procurement Rules, 2014 (the “Rules”).

3.The scope of civil works advertised, indicated estimated costs, tendered / quoted amounts and quantum of additional performance security required, vary from case-to-case, but grievance rallies around the demand of furnishing additional performance security, beyond the capping of 10% prescribed under Rule 56 of the Rules.

4.Brief background facts are that various Government departments – procuring agencies – have advertised civic / municipal works and invited bids, as per the terms and conditions prescribed. It is pertinent to mention that estimated / projected costs with respect to each category of works was approved and bidders were accordingly informed. Petitioners accordingly submitted their bids, in accordance with the terms of detailed notice for inviting tenders (DNIT). Bids were analyzed and evaluated accordingly by the procuring agencies. After scrutiny of the bids, lowest evaluated bid(s) were selected and process for award of contract initiated. In the cases at hand, procuring agencies issued directions to the bidders to provide additional performance security, equivalent to the amounts specified in the letters addressed and enclosed with each of the petition. The reasons extended were that tendered amounts were found below the estimated costs, hence the difference to that extent, was required to be secured through additional performance security.

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5.It is appropriate to highlight the pattern for determining the quantum of additional performance security required to be arranged in each case, which is explained through an illustration. Procuring agency, for instance, has advertised works relating to the construction of a road, and invited bids. The projected costs were estimated at Rs.10.00 Million. A bidder, quoted price of Rs.8.00 Million for the works advertised, which is the lowest bid. Now said bid is declared as lowest bid. Since the tendered amount is 20% below the estimated costs, the procuring agency directs lowest bidder to furnish additional performance security to the extent of difference of 20%, to secure the financial exposure involved, in case prospective contractor defaults in performance of obligations.

6.In these cases, where tendered amounts were found below the estimated costs, directions were accordingly issued for furnishing additional performance security, to the extent of the difference figured. Petitioners objected to such demand, claiming that said demand is contrary to Rule 56 of the Rules, as quantum of performance guarantee to be furnished cannot exceed 10% limit. When threatened with the forfeiture of the security amounts already submitted, petitioners invoked constitutional jurisdiction.

7.The case of the petitioners, as presented by the counsels, is that demand for procuring additional performance security beyond the capped limit of 10% of the contract amount is illegal, in terms of Rule 56 of the Rules, which governs and regulates the procurement process. It is argued that demand is even otherwise contrary to the mandate of clause 26-A of the bidding documents, wherein difference ranges from the lowest limit of 5% and goes to 10% maximum. One of the counsels argued that clause 26-A

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of the bidding documents is different – claiming that actually there are two set of bidding documents, each having a different clause 26-A -, which enables the procuring agencies to engage into cherry picking exercise, preferring favorites from amongst the pool of bidders. Learned counsels, in essence, has also pleaded discriminatory treatment.

8.Learned law officer argued that dispute raised, in pith and substance, is contractual in content, hence, not amenable to constitutional jurisdiction.

Adds that in view of the conditions and circumstances encountered, Rule 56 is not attracted, which bears no proximity to the requirement of additional performance security. Law officer has referred to the Notification(s) issued by the Finance department, Government of Punjab, to emphasize legality and rationality of requirement of additional performance security.

9.Arguments heard. The legality of required additional performance security, in the context of Rule 56, is the epicenter of controversy. And the effect of clause 26-A, and difference between two set of bidding documents, being an ancillary issue, will be dealt with in latter part of the judgment. Department pleaded that requirement of additional performance security has been raised in those cases, where tendered amount(s) is found below the estimated cost(s). It is expedient to reproduce Rule 56 of the Rules, clause 26-A and clause 26-B, of one set of bidding documents, which read as;

Rule 56 of Rules

56.Performance guarantee. — Where needed and clearly expressed in the bidding documents, the procuring agency shall require the successful bidder to furnish a performance guarantee which shall not exceed ten percent of the contract amount.”

Clause 26-A

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26 (A) In case the total tendered amount is less than 5% of the approved estimated (DNIT) amount, the lowest bidder will have to deposit additional performance security from the Scheduled Bank ranging from 5% to 10% as under, within 15 days of issuance of notice or with in expiry period of bid, whichever is earlier.

TOTAL TENDERED AMOUNT BELOW ADDITIONAL PERFORMANCE

CORRESPONDING ESTIMATED COST SECURITY

Clause 26-B 26 (B) Lowest evaluated bidder shall, within 15 days of the receipt by him of a notice in this regard furnish to the tender approving authority in cash, bank draft, cashier’s cheque, payment order or bank guarantee (valid for three months beyond completion time/extended completion time) from any scheduled Bank of Pakistan, the amount to make up performance security and / or additional performance security where required and specified in the tender in item (h) of Memorandum of work. Should the lowest evaluated bidder refuse or fail for any reason to furnish the performance security within the specified time, it should constitute a just cause for rejection of his tender and in the event of such rejection the entire earnest money shall be forfeited to government as compensation for such default.

[Emphasis supplied]

10.Upon perusal, it is clear that requirement of performance guarantee under Rule 56 of the Rules bears no semblance or relationship with the requirement of additional performance security, which is a different and separate specie. Reference to the terms of bidding documents is essential to underscore the difference between performance guarantee and additional performance security. Clause 30 of General directions for the guidance of tenderers is reproduced hereunder as:-

“At the time of Engineer-in-charge notifies acceptance of the tender to the tenderer, he will send the tenderer the form of agreements between the parties. Within fifteen (15) days of receipt of the form of agreement, the successful tenderer shall

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furnish the performance security (10% of the contract price) and sign the contract in the presence of the Engineer-in-charge.

11.Prospective contractors are required to provide performance guarantee, to ensure performance of the contractual obligations, notwithstanding difference between the tendered amounts and estimated costs. It is nobody’s case that performance guarantee, exceeding 10% is claimed. It is apparent that performance guarantee required to be furnished, at the time of the award of contract is within specified limits, as evident from terms of contract. Petitioners erroneously correlate the requirement of additional performance security with the necessity of performance guarantee, without appreciating that both requirements are mutually exclusive. The subject matter of dispute is additional performance security. There may be an instance where requirement of additional performance security is not required, if tendered amount equals the estimated costs, but still performance guarantee is required to be furnished in accordance with terms of bidding/contract. Submissions that Rule 56, ibid, is attracted to the facts and circumstances of these cases are misconceived. Upon perusal of above-noted clause 26-A, it is clear that requirement of additional performance security is subject to contingency, accrual of difference between the tendered / quoted amounts and estimated / projected costs. The expression ‘additional’ is meaningful and has its own significance. Therefore, performance guarantee and additional performance security are two separate and independent conditions, claim that two conditions overlap is fallacious. There appears no commonality between Rule 56 of the

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Rules and clause 26-A of the bidding documents. There is no intimation that any bidder has objected to the incidence of additional performance security, in terms of above-noted clause 26-A, before participating in the bidding process, or alleged redundancy thereof in wake of clause 30, reproduced above. All of the petitioners have had participated in the bidding process, as per the terms conveyed under the bidding documents. A handful of the bidders / petitioners have objected to the requirement of additional performance security, calling for review and revision of the terms of bidding. The terms and conditions of bidding cannot be varied post-bidding stage, to the prejudice of the bidders, who were part of the process but not part of instant proceedings. The outcome of instant determination is that mandate of Rule 56 of the Rules is not attracted to dismiss the requirement of provisioning of additional performance security.

12.Now I take an ancillary question that whether, where applicable, clause 26-A of the bidding documents can be invoked when demand for furnishing additional performance security, exceeds upper limit of 10%. Learned counsels for the petitioners argued that additional performance security, beyond 10%, limit cannot be asked. Learned law officer and counsels representing department(s) have argued that quantum of additional performance security, may exceed limit of 10%, if and where difference between the estimated costs and tendered amounts is more than 10%.

13.The literal reading of above-noted clause 26-A of the bidding documents suggests that where total quoted amount is below the

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estimated costs, - ranging from the lower limit of 5% to higher limit of 10% - the bidder is required to deposit additional performance security accordingly, equivalent to the difference, and not otherwise.

The requirement of submitting additional performance security is a condition prescribed in the bidding documents, applicability whereof cannot be evaded. The question is whether demand for additional performance security may lawfully exceeds 10%? Here, actually, the confusion arises. It is interesting to note that there are two versions of clause 26-A of the bidding documents, which are under challenge through these petitions – one version of clause 26-A is earlier reproduced (format-I) – subject matter of W.P. No. 1094/2021 - and another version of clause 26-A (format-II) is reproduced hereunder, for ease of reference, which reads as;

26 (A): In case the total tendered amount is less than 5% of the approved estimated (DNIT) amount, the lowest bidder will have to deposit additional performance security from the scheduled Bank ranging from 5% to Onward as under, within 15 days of issuance of notice or with in expiry period of bid, whichever is earlier.

TOTAL TENDERED AMOUNT BELOW ADDITIONAL PERFORMANCE

CORRESPONDING ESTIMATED COST SECURITY

10% 10% and so on.......

[Emphasis supplied]

14.There is no dispute qua the pattern devised for determining the quantum of additional performance security required; but real controversy is that whether clause 26-A can be construed in a manner to extend legitimacy to the requirement of additional

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security, travelling beyond the limit of 10%. There are no two ways about it that clause 26-A in (format-I) and (format-II) are different, which difference actually leads to arbitrary and discriminatory exercise of discretion. Some of the learned counsels submitted that, in cases where clause 26-A (format-I) is applicable, demand beyond capped limit of 10% is actually transgression, calling for rectification in exercise of judicial review jurisdiction. Submission made is plausible. On directions, representative of the Finance Department of Government of Punjab appeared and explained the rational for claiming additional performance security, objective whereof is to secure the financial exposure and to avert financial losses to the procuring agencies / Government in events of contractual defaults.

When confronted that whether clause 26-A (format-I) caters for an eventuality where difference between the estimated costs and tendered amounts exceeds capping of 10%. The officer, in all fairness, concedes that maximum difference envisaged under clause 26-A is 10% - in one set of bidding documents. Understandably, there is rational for seeking additional performance security, objective whereof is to mitigate potential financial exposure – to the extent of difference between quoted / offered price and estimated costs – in cases where contractors ambitiously offer unrealistic prices for securing award of works / contracts but lately defaults qua performances of their obligations.

15.The requirement of providing additional performance security – where difference exceeds upper limit of 10% - is apparently

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covered in terms of clause 26-A (format-II), bare reading whereof supports the stance of the department that amounts of additional performance security may actually travel beyond 10% - equivalent to actual difference found between the estimated costs and tendered amounts. The expressions “ranging from 5% to onwards as under” and “10% and so on” in clause 26-A (format-II) extends legitimacy qua demand of additional performance security, exceeding an apparent limit of 10%.

16.Now the question arises that whether the bids, solicited under bidding documents containing clause 26-A (format-I), wherein difference between the tendered amount(s) and estimated costs exceeds 10%, can be classified as responsive bids – where procuring agency, in the context of clause 26-A (format-I), cannot demand additional performance security in excess of 10%. Whether acceptance of bids, where difference between tendered amount and estimates costs exceeds 10%, constitutes lawful exercise of discretion? No, the discretion exercised with respect to the bids, showing difference between estimated costs and tendered amounts exceeding 10% limit, is not inconsonance with the mandate of clause 26-A (format-I). It appears that procuring agencies are cognizant of the shortcoming of clause 26-A (format-I) and proceeded to introduce clause 26-A (format-II), acknowledging shortcomings in clause 26-A (format-I).

17.There is another striking aspect of this case. It is not disputed that petitioners submitted bids, after becoming fully conversant with

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the terms of bidding – who have had read the conditions of bidding and were aware of the requirements of performance guarantee and additional performance security, as the case may be -, whose bids were evaluated and declared lowest, though showing difference of more than 10%, between the estimated costs and tendered amounts.

Petitioners have not objected to the approvals extended – which manifest illegal exercise of discretion when examined in the context of clause 26-A (format-I) – but forthwith objected to the demand of additional performance security. Petitioners are themselves the beneficiaries of irregular exercise of discretion.

18.This court, however, exercises restraint from making declaration of invalidity qua non-responsive bids, anticipating possibility that in some cases contractors could have volunteered to arrange for additional performance security and proceeded to complete the works, and in such circumstances, declaring such bids, in principle, as illegal would be highly unjust, tantamount to punish contractors who acted in good faith, provided additional guarantee, employed resources and proceeded to undertake the works – who are otherwise not before this court.

19.This court will not embark upon an exercise to segregate cases on the basis of applicability of clause 26-A (format-I) and (format-II), which can be efficiently taken by the procuring agencies. It is appropriate to refer all these petitions to the concerned procuring agencies to enable the willing contractors, whose bid(s) showed difference between estimated costs and quoted prices in excess of

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10%, and their bids were evaluated under clause 26-A (format-I), but who are ready and willing to arrange for additional performance security, as required, and to proceed with the performance of works assigned. The concerned departments shall consider each case separately – falling within the clause 26-A (format-I) - for seeking willingness of the contractors qua the requirement of additional performance security, and if contractors / petitioner’s tender additional performance security within time period intimated, those cases may be proceeded with in accordance with the prescribed procedures for award of contracts. And in those cases, falling under clause 26-A (format-I), where petitioners / contractors are not ready and willing to arrange for additional performance security, their bids shall be declared as cancelled / annulled but without applying the forfeiture clause – as envisaged in clause 26-B of the bidding documents. Contractors cannot be held liable for alleged failure to submit additional security, when department(s) had not acted in accordance with clause 26-A (format-I). It is expected that aforesaid exercise shall be conducted within a period of three weeks. And in all cases where clause 26-A (format-II) is applicable, the department may allow 15 days to the petitioners / contractors to furnish additional performance security, to the extent of the difference between estimated costs and tendered amounts, failing which action may be taken under clause 26-B of relevant bidding documents. This order would not affect or prejudice the requirement of providing performance guarantee as per the terms of bidding documents.

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20.Outcome of aforesaid determination is that Rule 56 of the Rules is not attracted to the facts and circumstances involved. No case for declaration of invalidity is made out in the context of Rule 56, ibid.

21.As far as ancillary question of scope and effect of clause 26-A of format-I and format-II, the petitions, listed in Schedule-A are accordingly disposed of in terms of findings in paragraph 19, above.

(Asim Hafeez) Judge

Approved for reporting

Schedule-A

Sr. # Case # Title

01.W.P. No. M/s Ch. Enterprises etc Vs. Govt. of 1094/2021 Punjab, etc

02.W.P. No. M/s Haroon Construction Company Vs. 6774/2021 Govt. of Punjab, etc

03.W.P. No. Mian Waqas Engineer & brothers Vs. 22008/2019 Govt. of Punjab, etc

04.W.P. No. M/s Al-fazal Construction Vs. Govt. of 23887/2020 Punjab, etc

05.W.P. No. Muhammad Ehsan Mehmood Vs. Govt.

26030/2020 of Punjab, etc

06.W.P. No. M/s Al-Fazal Construction etc Vs. Govt. 26590/2020 of Punjab, etc

07.W.P. No. M/s Arfa Hussain Enterprises etc, Vs. 33070/2020 Govt. of Punjab, etc

08.W.P. No. M/s Al-Fazal Construction Vs. Govt. of 34883/2020 Punjab, etc

W.P. # 31153/2020 13

09.W.P. No. M/s Al-Fazal Construction etc Vs. Govt. 39813/2020 of Punjab, etc

10.W.P. No. M/s Imran Sharif Vs. Govt. of Punjab, 41551/2020 etc

11.W.P. No. Sindhu Developers Vs. Govt. of Punjab, 42389/2020 etc

12.W.P. No. M/s Haroon and Co Vs. Govt. of Punjab, 46594/2020 etc

13.W.P. No. M/s Muhammad Aslam Contractors Vs. 49756/2020 Govt. of Punjab, etc

14.W.P. No. M/s Muhammad Aslam Contractors Vs. 49758/2020 Govt. of Punjab, etc

15.W.P. No. M/s Muhammad Aslam Contractors Vs. 49760/2020 Govt. of Punjab, etc

16.W.P. No. M/s Al-Fazal Constriction etc Vs. Govt. 51443/2020 of Punjab, etc

17.W.P. No. M/s Al-Fazal & brothers Vs. Govt. of 54779/2020 Punjab, etc

18.W.P. No. M/s Mian Abdul Sattar etc Vs. Govt. of 58398/2020 Punjab, etc

19.W.P. No. M/s Bari Engineering Associates, etc Vs. 61660/2020 Govt. of Punjab, etc

20.W.P. No. M/s H.M.S Enterprises, etc Vs. Govt. of 63408/2020 Punjab, etc

21.W.P. No. Muhammad Aslam Vs. Govt. of Punjab, 65847/2020 etc

22.W.P. No. M/s Husnain Kareeman Co, etc Vs. 68735/2020 Govt. of Punjab, etc

23.W.P. No. M/s Arfa Hussain Enterprises, etc Vs. 68741/2020 Govt. of Punjab, etc

24.W.P. No. M/s M. Iqbal Khan, etc Vs. Govt. of 69599/2020 Punjab, etc.

(Asim Hafeez) Judge.

M.Nadeem*

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