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CAG: OC inflated overlay rates, favoured cartels
January, 07th 2011

The Comptroller and Auditor General's audit of the Commonwealth Games overlays contracts has found that the Organizing Committee led by Suresh Kalmadi inflated prices of items and has practically accused him of running propaganda through ads to falsify facts after the event ended.

The audit report, finalized after considering the OC's response, has listed 16 items to show how Games bosses allowed ineligible vendors to form cartels and paid exorbitant amounts for identical items that had been bid for at a lower cost.

Games venues were divided into seven clusters. A tissue roll was priced in one cluster at Rs 22 per roll, while Rs 3,751 per roll was paid in another cluster. A small refrigerator came for Rs 9,848 from GL Moroform, while Khanpur Extension-based PICO Deepali billed it for Rs 22,957.

For a soap dispenser, the OC bosses allowed payment of Rs 187 per piece to Vasant Kunj-based Nussli India Pvt Ltd. The same item was supplied by Kirti Nagar-based ESAJV D Art Indo Consortium for Rs 9,379 per piece.

A 15-litre trash bin supplied by PICO Deepali came for Rs 245. But the same item from ESAJV D' Art was priced at Rs 7,618 per bin. A 20 KVA power backup (UPS) from one vendor came for Rs 6 lakh but another supplier was paid more than Rs 10 lakh for a similar item.

The difference in the rates charged by vendors for items with same specification varied between 5% and 99%. Had the vendors adopted the minimum rate across the clusters, the OC could have reduced their expenditure at least by Rs 220 crore, the CAG says. This excludes savings of Rs 23 crore on service tax that would have entailed in such a scenario.

The audit has remarked that in many cases, the rental charge was higher than the actual purchase cost of items, even to the extent of 185%. The excess expenditure would be much higher if the value of items disclosed to the Customs authorities by the vendors was taken into account.

"With the number of irregularities and extent of inflated prices quoted by the vendors coupled with the manner in which the deals were finalized with the vendors, these cannot be viewed merely as instances of omission or oversight. This amounts to willful misuse of government money and was the culmination of OC's decision to propaganda," the report says.

CAG accused the OC of introducing restrictive clauses to keep competition out of the bidding process. Though two of the vendors finally selected PICO Deepali and Nussli India did not meet the required turnover eligibility of Rs 1,075 crore, they were selected at the instance of V K Verma , one of the directors-general of the Games. The OC authorities failed to give reason for this exception.

The report adds that cluster-wise tendering was adopted instead of item-wise tendering to help the vendors form cartels and inflate prices. Restrictive clauses were embedded in the tender documents to prevent competition and favouritism and collusion of OC officials was evident in the manner in which the vendors were allowed to cartelize and bid for different clusters.

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