Class-I, Class-II or non-local: what "local content" decides in a bid

The order, and the two offices behind it

This is general information; confirm with the tender document and your adviser.

The Public Procurement (Preference to Make in India) Order was issued on 15 June 2017 and circulated to every ministry by the Department of Expenditure. Its idea is narrow: where enough of the value of what a bidder offers was added in India, the tender treats that bidder differently. The Press Information Bureau's summary of the original order fixes the first figure, “As per the order the minimum local content shall ordinarily be 50%. The Nodal Ministry may prescribe a higher or lower percentage in respect of any particular item and may also prescribe the manner of calculation of local content”, and the second, “The margin of purchase preference shall be 20%.”

Two offices are in play. The order itself is the Department for Promotion of Industry and Internal Trade's, and it has been revised since: on 28 May 2018, on 29 May 2019, and again on 4 June 2020 and 16 September 2020. The floor for a particular item, and the manner of working the percentage out for it, belong to the nodal ministry for that item, so the order sets a default and a notification for your product may sit above it.

The three classes, and the definition underneath them

The revision of 4 June 2020 is the one that put three words into the bid form. A “Class-I local supplier” is one “whose goods, services or works offered for procurement, has local content equal to or more than 50%, as defined under this Order”; a “Class-II local supplier” is one with “local content more than 20% but less than 50%”; a non-local supplier is one with “local content less than or equal to 20%”.

The classes rest on a definition given two years earlier, in the revision of 28 May 2018: “Local content” “means the amount of value added in India which shall, unless otherwise prescribed by the Nodal Ministry, be the total value of the item procured (excluding net domestic indirect taxes) minus the value of imported content in the item (including all customs duties) as a proportion of the total value, in percent”. The same revision defines the “margin of purchase preference” as “the maximum extent to which the price quoted by a local supplier may be above the L 1 for the purpose of purchase preference”.

That definition is quoted here, not applied. What counts as imported content in a particular quotation, and which taxes fall inside the words above, is the supplier's arithmetic and the accountant's who certifies it. Where the nodal ministry has prescribed its own manner of calculation, that manner governs.

What the class decides about who may bid

The class is not only a tie-breaker at the price stage; on some tenders it decides whether a bid may be made at all. Where the nodal ministry has notified that there is sufficient local capacity and competition for an item, the order restricts the tender to Class-I local suppliers whatever its value.

Below that, the 2020 revision ties the classes to the global tender enquiry rule. Its para 3(b) reads: “with estimated value of purchases less than Rs. 200 Crore, in accordance with Rule 161 (iv) of GFR, 2017, Global tender enquiry shall not be issued except with the approval of competent authority as designated by Department of Expenditure. Only 'Class-I local supplier' and 'Class-II local supplier', as defined under the Order, shall be eligible to bid.”Department for Promotion of Industry and Internal TradeA non-local supplier is therefore outside a large part of central procurement by the terms of the order, not by a buyer's choice.

The preference itself, and what Class-II does not get

Where the tender is open to more than one class, the margin decides the award. If the lowest bidder is a Class-I local supplier, “the contract will be awarded to L1”. If it is not, the order splits the two cases.

For divisible goods, works or services: “50% of the order quantity shall be awarded to L 1. Thereafter, the lowest bidder among the 'Class-I local supplier' will be invited to match the L 1 price for the remaining 50% quantity subject to the Class-I local supplier's quoted price falling within the margin of purchase preference.”Department for Promotion of Industry and Internal TradeFor an item that cannot be split, the lowest Class-I local supplier whose price falls within the margin is invited to match the lowest price for the whole order.

Class-II sits in the middle and gains nothing at this stage: the order says in terms that a “Class-II local supplier” “will not get purchase preference”. Class-II is an eligibility category, not a price advantage. This preference is also a different thing from the small-enterprise preference, which is set by its own order and works on its own band. That one is on what the MSE policy gives and does not.

Proving it: a self-declaration, then an auditor

At bid stage the proof is the bidder's own word. The Goods Manual, reproducing the order, states the two-stage position: “The bidder shall give self-certification for local content in the quoted item (goods/ works/ services) at the time of tendering. However, at the time of execution of the project, for all contracts above INR 10 Crore, the contractor/ supplier shall be required to give local content certification duly certified by cost/ chartered accountant in practice.”Department of Expenditure, Ministry of Finance

The verification paragraph of the order sets who may sign that certificate, and both current manuals reproduce it. In the Works Manual's wording: “In cases of procurement for a value in excess of Rs. 10 crores, the 'Class-I local supplier'/ 'Class-II local supplier' shall be required to provide a certificate from the statutory auditor or cost auditor of the company (in the case of companies) or from a practicing cost accountant or practicing chartered accountant (in respect of suppliers other than companies) giving the percentage of local content.”Department of Expenditure, Ministry of Finance

Read together: a company's certificate comes from its statutory auditor or cost auditor; a bidder that is not a company goes to a cost accountant or a chartered accountant in practice. What the certificate states is a percentage, not a class; the class follows from the percentage and the thresholds above.

What 16 September 2020 added, and one revision not read

The government amended the order on 16 September 2020, and the Press Information Bureau's summary lists what changed. Nodal ministries may notify a higher minimum local content “for Class-I & Class-II local suppliers which was earlier fixed at 50% and 20% respectively”. Entities from countries that shut Indian firms out of their own procurement are excluded from the corresponding Indian procurement. Specifying “foreign certifications/ unreasonable technical specifications/ brands/ models in the bid document is restrictive and discriminatory practice against local suppliers”. And the buyers themselves acquired a duty: “All administrative Ministries/Departments whose procurement exceeds Rs. 1000 Crore per annum shall notify their procurement projections for the next 5 years on their respective website.”Press Information Bureau, Government of India

One caution belongs with all of it. The order stands as revised to 16.09.2020 and further on 19.07.2024 (not summarised here): the 2025 manuals cite a revision of that date, it has not been read for this page, and nothing here says what it changed. A clause in front of you may reflect it.

The three lines to read in the tender

The order reaches a bidder through the tender document, and three lines carry it. The instructions to bidders say whether the tender is restricted to a class. The bid form says which class is being declared, and in what words. The qualification section says what evidence of local content is wanted at bid stage and what is wanted at execution.

Where a clause is silent or reads oddly against the order, the pre-bid stage is where it is raised. How that works is on how a tender changes after it is published, and where this order sits among the other rules a central buyer works under is on the rules.

This is general information; confirm with the tender document and your adviser.