As India’s top tech firms TCS, Infosys and Wipro step up efforts to address the lucrative government outsourcing market (over PSU projects $100 billion globally), project delays, frequent changes in leadership and increased public scrutiny are making it tough for them to execute public sector projects.
Indian public sector enterprises like India Post and Indian Railways, along with other government agencies, are expected to spend nearly $2 billion over the next 12 months on outsourcing different processes and software services.
However, potential project delays like in the case of the TCS-Indian passport services are among the concerns looming large, even as Indian tech firms continue to remain bullish about the $2-billion Indian government IT outsourcing market this year.
“For us, increased scrutiny and frequent changes in joint project teams pose tremendous challenges,” said a senior official at one of the tech firms working on a project for the Indian Railways.
“The government opportunity is huge, at least $1 billion currently in the pipeline, but serving government customers is never an easy task — you cannot compare it with the private sector,” he added.
He requested anonymity because he is not allowed to discuss project details with the media.
Penalties like the Rs 2 lakh that TCS is being asked to pay for every week of delay in the e-passport project are the least of the worries, say firms bidding for government contracts. “Penalties are normal even in projects put out by private firms. What is worrying is the time period taken to finalise a contract,” said Kapil Puri, chairman and managing director, Spanco.
For example, the Maharashtra government had called for tenders to set up a state-wide area network in 2008. But, the tender was finalised almost 12 months later — in 2009. Delays can make it hard for companies that are bidding for these projects to plan for the future. “You mobilise a lot of resources for the project but if the project is delayed, you end up being stuck with those resources. For instance, you may have hired some people for a project, but if it is delayed, you end up keeping the people on the bench,” Mr Puri said.
Government contracts are also prone to litigation and can sometimes be caught in legal tangles causing months of delay even after the L1 or the PSU projects lowest bidder in the commercial bid has been finalised. The commercial bids are shortlisted after the technical bids, and this itself can take 12-18 months. “In most cases, the person who is the decision-maker is afraid to take a decision and wants to protect himself if any of the bidders who lose out, contest the decision in court. This is also one of the reasons why the process is so slow,” said an official with one of the firms which handles many government contracts.
“The real challenge in government projects is to get a sign-off. Unless the vendor gets the sign-off, he can’t raise the invoice and get paid for this work,” pointed out Milan Sheth, partner, Ernst & Young. “You need to build very strong relationships in the government to get a sign-off. More than the penalty, it is the risk to the reputation that is bigger. If the vendor gets blacklisted, then he cannot bid for other government projects, and can end up losing crores of rupees in opportunity costs.”
Insiders also point out lack of collaboration between different procurement agencies within the government being a bottleneck.
“For us, things move at a very slow pace, because our procurement policies are different,” admitted a senior government official involved with outsourcing initiatives of the Indian Railways. “One of the reasons for the delays and issues is our piece-meal approach for buying solutions — for instance, we recently awarded three business application projects separately,” he added.
If the project has not been delivered, then the vendor can be sued for five times the fees. This is one reason why many multinationals are reluctant to bid for government contracts as there is a huge liability involved. “Any company, which does work for the government has to recognise that it is a different kind of business, and you need a different structure for it. Also, if the vendor has not defined the milestones properly, then he’s done for,” adds Mr Sheth.
Among the global companies, only EDS has around 20% operating margin in its government business with the rest including Accenture and CSC managing in single digits.
“It’s difficult to manage operating margins of over 10% in a typical government project,” said a chief financial officer at one of the Indian tech firms.
Source: http://economictimes.indiatimes.com/Infotech/ITeS/TCS-Infosys-Wipro-sweat-over-govt-IT-projects/articleshow/5140490.cms?curpg=2
