Tender bid evaluation may lawfully rely on actual public expenditure, even where VAT differs across bidders

In tender evaluation, bids may be assessed on the basis of ex-factory price plus applicable VAT where the objective is to secure the lowest public outflow, and differing tax incidence across bidders does not by itself make the process arbitrary or discriminatory. A later increase in VAT does not require reallocation of indents or fresh acceptance of the offer where the successful bidder continues to supply at the lower effective price and the Government's expenditure is not increased. Past performance considerations and financial rules cannot compel re-opening of a contract that remains economically advantageous.

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Issues: (i) Whether evaluation of competing tender bids on the basis of ex-factory price plus applicable VAT was arbitrary or discriminatory merely because the tax incidence was beyond the bidder's control; (ii) Whether acceptance of the tender created only a standing offer requiring fresh consideration at each indent, so that a later increase in VAT entitled the petitioner to reallocation of the contract on the basis of revised comparative prices and past performance.

Issue (i): Whether evaluation of competing tender bids on the basis of ex-factory price plus applicable VAT was arbitrary or discriminatory merely because the tax incidence was beyond the bidder's control.

Analysis: Equality under Article 14 requires State action in contractual matters to be fair, reasonable and non-arbitrary, but the State remains entitled to act on business considerations and to prefer the bid that results in the least outflow from public funds. The comparative impact of tax incidence on the purchase price is a relevant factor in bid evaluation. The personal or local handicaps of a bidder, including variation in VAT across States, do not make the price-based evaluation arbitrary when the object is to secure the most economical purchase.

Conclusion: The bid evaluation based on net outflow, including VAT, was valid and was not discriminatory or arbitrary.

Issue (ii): Whether acceptance of the tender created only a standing offer requiring fresh consideration at each indent, so that a later increase in VAT entitled the petitioner to reallocation of the contract on the basis of revised comparative prices and past performance.

Analysis: Even assuming the tender operated as a standing offer, subsequent changes that did not increase the Government's outflow did not render the original acceptance unreasonable. The successful bidder absorbed the increased VAT and continued to supply at the lower effective price. In that situation, Rule 160 of the General Financial Rules 2005 and the alleged superiority of past performance could not compel the State to shift the indents. The State was not bound to re-open the contract when the existing arrangement remained economically advantageous.

Conclusion: The petitioner was not entitled to insist on reallocation of the indents or fresh acceptance of its offer.

Final Conclusion: The challenge to the tender allocation failed, and the writ petition was dismissed with costs.

Ratio Decidendi: In tender matters, a State may lawfully evaluate bids on the basis of the actual public expenditure involved, and a subsequent tax increase does not require reallocation where the successful bidder continues to supply at the lower effective price.

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