Competition in name only

EDITORIAL: Any procurement rule that allows public money to be spent outside open competition must carry an exceptionally high burden of justification, because discretion in government contracting is precisely where inefficiency, favouritism and abuse can creep in. That is why the controversy over Rule 42(f) of the Public Procurement Rules matters well beyond the telecom sector.

The provision, inserted in 2021, permits direct contracting with state-owned entities for certain time-sensitive works and services considered in the public interest, bypassing competitive bidding.

The Telecom Operators Association (TOA) now wants it repealed, arguing that the mechanism has increasingly crowded private companies out of government IT, telecom and digital-services projects. The concern is legitimate.

Open competitive bidding exists for a reason. When government spends taxpayers’ money, competition should ordinarily determine who can provide the required service at the best combination of price, quality and capability.

Direct contracting inevitably introduces discretion into that process, and discretion without tightly defined limits creates opportunities for preferential treatment, inefficiency and, ultimately, abuse.

The problem becomes considerably more troubling when a State-Owned Enterprise (SOE) obtains a government contract without competition and subsequently, at times passes the work to a private company. Rule 42(f) itself requires the entity receiving the direct contract to execute the work through its own resources and bars private-sector participation as partner, joint venture or subcontractor. If projects are nevertheless being subcontracted in the manner alleged by the TOA, the government should investigate immediately.

There is also a basic economic absurdity involved. If a state entity receives a contract because it enjoys privileged access to government procurement and then engages a private company to perform the actual work while retaining a margin, it effectively becomes a rent-collecting intermediary. The government could have invited private firms to compete for the contract directly, discovered the market price transparently and eliminated the unnecessary layer altogether.

This also sits awkwardly with the government’s repeated insistence that economic growth must increasingly be private-sector led. Private companies cannot reasonably be expected to invest in technology, infrastructure and skilled employees, pay taxes and compete internationally while the state simultaneously reserves valuable domestic business for entities that it owns and protects.

In technology especially, domestic contracts can provide Pakistani companies with the experience, scale and credentials needed to compete for business abroad.

The IMF has also pressed Pakistan to reform procurement rules concerning direct contracting between public entities, reinforcing the case for greater competition and transparency. Yet there is an argument for retaining some form of G2G exception.

Governments occasionally face emergencies, sensitive projects or genuinely time-critical requirements where conventional procurement procedures could impose unacceptable delays. Abolishing every avenue for direct contracting could therefore create problems of its own.

That makes the boundaries around the exception especially important. Rule 42(f) should operate within a narrow, clearly circumscribed band, with specific qualifying conditions, documented justification and meaningful oversight. “Public interest” and “time-sensitive” cannot become convenient labels attached to contracts simply because an agency prefers to avoid competition. Every exemption should be capable of surviving subsequent scrutiny, including why competitive bidding was unsuitable and why the selected state entity represented better value.

Where an SOE wishes to compete for ordinary government business, there is little reason why it should fear an open tender. Public and private entities should submit their offers, disclose their prices and demonstrate their capabilities on equal terms. If the SOE genuinely provides the best value, it should win.

The government may have legitimate reasons for preserving some procurement discretion, but Pakistan’s experience offers ample evidence of what can happen when discretion becomes routine. The exception must therefore remain exactly that: an exception. Otherwise competitive procurement becomes little more than competition by invitation.

Copyright Business Recorder, 2026