𝗔 𝗖𝗮𝘀𝗲 𝗦𝘁𝘂𝗱𝘆 𝗼𝗻 "𝗗𝗶𝘀𝗺𝗮𝗻𝘁𝗹𝗶𝗻𝗴 𝗮𝗻𝗱 𝗗𝗶𝘀𝗽𝗼𝘀𝗮𝗹 𝗼𝗳 𝗮𝗻 𝗢𝗹𝗱 𝗣𝗹𝗮𝗻𝘁"

Background

A complaint was received by the Vigilance Department alleging that post-tender changes were made in the terms and conditions of the contract for dismantling and disposal of an old  Plant, favouring the contractor.

Facts Revealed

The 60-year-old Plant had become economically unviable. Management decided to dismantle and dispose of the plant. A consultant was appointed to estimate the mechanical and electrical equipment, technical and general structures, and the expected net revenue. Referring to the Detailed Project Report and site assessment, the consultant estimated about 12,000 MT of materials and projected a net revenue of ₹8 crore. This estimate was accepted with little deliberation by the designated committee.

An open tender was issued, with key terms including:

Materials available “as is where is” for inspection before bid submission.

Sale on “No Complaints” basis with no quality or chemical analysis guarantees.

Bidders deemed to have accepted these conditions under the principle of caveat emptor.

Scrap expected during dismantling: around 700 MT (variable).

Though item-wise prices were to be quoted, the value of all materials would be treated as a single lot with firm pricing.

Entire payment to be made within 15 days of Sale Order; failure to do so would lead to forfeiture of EMD.

Nine offers were received; seven were found acceptable. Forward Auction resulted in H-1 quoting ₹27 crore, far above the estimated ₹8 crore.

Post-Auction Developments

22 days after the Forward Auction, the H-1 party sought to pay in five equal instalments, citing practical difficulty in dismantling everything at once. 35 days after receiving this request, the Tender Committee rejected it as being against NIT conditions. However, six days later, the same committee reconsidered and approved payment in three equal instalments. Management accepted this recommendation, and the Sale Order was issued — 102 days after the Forward Auction — with a requirement to complete dismantling and disposal within six months.

The contractor began dismantling two months after the Sale Order. After about five months, the contractor raised a dispute regarding material identification. A committee was immediately formed and proposed three alternatives:

1. Consider all materials as one lot (tonnage per Sale Order) — no revenue loss.

2. Club mechanical equipment, structures, and scrap, and consider rate per MT — no revenue loss.

3. Segregate materials on actual basis and hand them over item-wise — revenue loss expected.

A second committee reviewed this report and recommended Option 3, citing consistency with contract provisions even though losses to the company were foreseen. It also recommended forming another committee to oversee the segregation process. Management accepted the recommendations.

A new committee was formed and the consultant was directed to estimate various categories of materials at the site and report periodically.

25 months after issue of the Sale Order, the deviation statement showed a net revenue reduction from ₹27 crore to ₹21 crore, resulting in a ₹6 crore loss. This was due to extensive re-categorisation of mechanical and electrical equipment as scrap. Scrap quantity, originally estimated at 700 MT, was finally assessed at 9,600 MT.

Emerging Issues and Analysis

a) Unrealistic Revenue Estimation

The H-1 price of ₹27 crore highlighted the gross under-estimation of revenue at ₹8 crore.

The “Policy Guidelines for Management of Idle Assets” require realistic estimates aligned with market rates. At the time of the NIT:

Marketing Department data: average scrap NSR ₹18,708/MT

Forward Auction service provider data: used MS scrap ₹20,600/MT

Neither the consultant nor the committee verified prevailing market prices. Considering even the lower rate for used MS scrap, the estimated net revenue should have been at least ₹21 crore.

b) Change in Payment Terms After Price Discovery

NIT required payment within 15 days, but the contractor was allowed to pay in three instalments after quoting in the auction based on original terms.

This deviation led to an opportunity cost of ₹67.87 lakh at 12% interest.

c) Major Deviation in Material Quantities and Resultant Loss

No evidence was found that the contractor was persuaded to accept revenue-neutral alternatives. Multiple committees were created citing the need to clear the site quickly, yet dismantling took 25 months instead of the stipulated six months.

Importantly, the NIT clause — treating the entire plant as one single lot with a firm price — was overlooked when approving item-wise segregation.

The final deviation statement showed scrap quantity increasing from 700 MT to 9,600 MT, leading to the confirmed ₹6 crore revenue loss.

Outcome of Investigation

The Central Vigilance Commission advised major penalty proceedings against ten senior officials associated with the processing and handling of the case. Management accepted this advice, initiated disciplinary  proceedings and imposed Major Penalty.

NB: This case study is compiled exclusively for general awareness and capacity-building. Names and identifiers have been intentionally omitted, and no portion of this document is intended to malign, defame, or adversely reflect upon any person or organisation.