“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.
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
