“Whose loss is it anyway?”

“Vendor Lock-in” is a major concern for any buyer, especially if the product/ service procured is of high value and has long-term implication on future procurement. The concern is quite natural and justified because if the product/ technology has locked-in the buyer, it is quite possible that the seller could use this dependency to extract more than what is fair. There are quite a lot of discussions on this topic and there are quite a lot of strategies that try to address this. The mirror image of this is the “buyer- squeeze”. In this case the buyer who has significant market power can use the market power to squeeze the vendor to extent that he may really bleed to death.

One of the most classical buyers in this respect is government. This is because bureaucracies like many large organisations are designed with maintenance orientation than development orientation. One of the primary characteristics of such a design is to have policies, procedures, rules and conventions that are not adventurous, but which prevent misuse and misappropriations. Such excessively straight-jacketed systems limit opportunities for human innovation and initiative. Adding on to this is the status quo bias which is inherent in most human beings, and this encourages these organisations to resist change intensely.

Very often we hear about scams where some private vendors or service providers have connived with politicians and government servants to cut sweet deals or to circumvent due processes. What we don’t hear about or bother about are the instances when government as a buyer squeezing vendors and service providers to their extinction or resulting in poor service delivery. This behavior by the government servant could be on account of many reasons. It could be (i) to extract some private gratifications (ii) because he is too scared to take decisions (iii) to satisfy his ego trip (iv) on account of his feudal mindset (v) to prove his predecessor wrong (v) to get some brownie points from his boss and so on. Even if they don’t do such things they end up taking no decision or taking enormous time in taking any decision which is very frustrating for any result oriented person to work with.

What makes it worse is that in Government generally there is very limited dis-incentive for failure and there is limited incentive for success or even for timely completion of the project. So he has no compunction to make un-reasonable demands beyond the scope as per the contract in the name of executive exigency. He will also delay or deny payments on silly grounds. The killer weapon that he has is the threat of black-listing. In private sector if one company blacklists a vendor he needs to worry only about loss of business from that entity. But if one government department blacklists a vendor, the vendor can say good bye to all government business. This threat is often used by the bureaucracy to get their way. If not official blacklisting they may gang-up or use their influencing power to block any business of that vendor. Therefore, seldom the aggrieved parties protest or object. They pay-up or shut-up.

This gets even worse when government is buying services like software solutions and consulting services. In this case the procuring department makes significant changes to the solution multiple times during the currency of the project. This could be because of the frequent changes of the officer in charge, or because the big boss gets some new idea. Unlike in the case of products or construction, in services the buyer feels no risk or compunction in asking for major changes as the impact of it is not visible to a larger audience or clearly measurable. This emboldens them to ask for changes and not pay for it. In fact many service providers who are not ‘adept’ or ‘comfortable’ in managing these quirks of the buyers now avoid/ limit their participation in government projects. One of the major challenges for achieving the “Digital India” vision will be this issue and not lack of ideas or lack of competency.

Most often they package their action under the garb of executive exigency. Indian law in this aspect has addressed this clearly. The judiciary has appreciated that if this is not addressed properly, some executives, with a short-term view could use this plea of executive necessity to drive his personal agenda. The judgment by Justice P N Bhagvati who has served as the Chief Justice of India has addressed this matter lucidly in Motilal Sugar Mills case (AIR 1979 SC 621). The sheer beauty, brilliance and clarity of this judgment is amazing. "The law may therefore now be taken to be settled as a result of this decision that where the Government makes a promise knowing or intending that it would be acted on by the promises and, in fact, the promisee, acting in reliance on it, alters his position the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution”

He has further elaborated, “Why should the government not be held to a high "standard of rectangular rectitude while dealing with its citizens"? There was a time when the doctrine of executive necessity was regarded as sufficient justification for the government to repudiate even its contractual obligations, but let it be said to the eternal glory of this court, this doctrine was emphatically negatived in the, Indo-Afghan Agencies case and the supremacy of the rule of law was established. It was laid down by this Court that the government cannot claim to be immune from the applicability of the rule of promissory estoppel and repudiate a promise made by it on the ground that such promise may fetter its future executive action."

But unfortunately there is little compliance to this principle in real life. Some argue that such hard bargain is for the benefit of the exchequer. But it often doesn’t. With such a tight squeeze and unfair dealing the quality of service suffer and many good people avoid/ limit doing business with the government. Those who know how to “manage” flourish. Such an environment begets crony capitalism which is detrimental for a sustainable society. Lord Acton’s quote on power is quite relevant in this context. “Power tends to corrupt, and absolute power corrupts absolutely.” Who else but government has absolute power?

Because power corrupts, society's demands for moral authority and character increase as the importance of the position increases. John Adams

(This is an updated version of my blog post that was earlier published in my personal blog)