What the MSE policy gives a small bidder, and what it does not

The order, and who it binds

Every MSE line in a central tender comes from one order. The principal order, S.O. 581(E) of 23 March 2012, was made under the Micro, Small and Medium Enterprises Development Act, 2006, and has been amended three times since: by S.O. 5670(E) of 9 November 2018, by S.O. 3237(E) of 11 August 2021, and by S.O. 5745(E) of 8 December 2022.

The 2018 amendment did the arithmetic that everyone now quotes. It substituted the figures 25 per cent for 20 per cent wherever they occurred in the order, and inserted a new paragraph 4A earmarking 3 per cent from within the 25 per cent target for micro and small enterprises owned by women. The policy applies with effect from 1 April 2012 and, in the Ministry's own words, “became mandatory with effect from 1.4.2015 onwards”.

The Government states the target as it stands today: the amended policy mandates 25% annual procurement from MSEs by central ministries, departments and central public sector enterprises, including 4% from MSEs owned by SC/ST entrepreneurs and 3% from MSEs owned by women. Each of those buyers is expected to set an annual goal at the beginning of the year against that minimum share of its total annual purchases.

Read the word “central” carefully. A state public works department, a municipal body or a state corporation tenders under its own state's policy, and that policy is not this one. How much of the central target is actually reached is reported by the Government each year; those figures, and the base each is computed on, are on public procurement in official figures.

The four benefits, in the FAQ's own words

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

The Ministry of MSME's own frequently asked questions answer this directly. Micro and small enterprises “will be facilitated by providing them tender sets free of cost, exempting MSEs from payment of earnest money deposit, adopting e-procurement to bring in transparency in tendering process”.

• Tender sets at no cost. A tender fee that other bidders pay is not charged to an MSE.
• No earnest money. The earnest money a tender would otherwise ask for is not asked of an MSE. The band a tender may set, the rule behind it and what a declaration in its place commits a bidder to are on EMD exemptions and the bid-securing declaration.
• A chance to match L1. The purchase preference is the benefit that actually moves an award, and it is the subject of the next section.
• Reserved items. A list of items must be bought from the MSE sector alone, and is dealt with below.

How the purchase preference band works

The preference is not a discount and it is not a set-aside. It is a right to match, and only in one situation. Participating micro and small enterprises “quoting price within price band of L1+15 percent shall also be allowed to supply a portion of requirement by bringing down their price to L1 price in a situation where L1 price is from someone other than a Micro and Small Enterprise and such MSE shall be allowed to supply up to 25 per cent of total tender value”.

Three things follow from that one sentence, and each of them decides real awards.

• The band opens only where L1 is not itself an MSE. Where an MSE is already lowest, there is nothing to match.
• The MSE does not win at its own price. It comes down to the L1 price, and supplies at that price.
• What it takes is a portion of the tender, not the whole of it.

There is one arithmetic trap in the band, and it is the buyer's arithmetic rather than yours. Where the buyer negotiates with a non-MSE L1, the Goods Manual says the price band “should be calculated based on the original L1 price, not the lower negotiated price”. A negotiated price does not narrow the band.

Where this preference sits in the wider order of evaluation (who L1 is, and which other preference can move an award) is on how the winner is chosen.

Reserved items, and the exemption a ministry may ask for

Some items are not tendered openly at all. The FAQ states that “There are 358 items reserved for exclusive purchase from MSE Sector”.

That list is not absolute. The 2022 amendment inserted a new sub-paragraph 3(v) allowing the Review Committee to “Consider the requests of the Central Ministries/ Departments/ PSUs for exemption, on a case to case basis, from procuring certain items from the reserved list for MSEs through open tendering.”Ministry of Micro, Small and Medium Enterprises (Gazette of India, Extraordinary, Part II Sec. 3(ii))So a reserved item is the rule, and an exemption for a named ministry is a decision that can be taken against it.

What the policy does not give

Four sentences here are worth more than the rest of the page, because each answers a claim that bidders make and buyers refuse.

• No exemption from performance security. The same answer that grants the earnest-money exemption ends: “However, exemption from paying of Performance Bank Guarantee is not covered under the policy”.
• No exemption from the security deposit either. Asked the question directly, the FAQ answers: “No, there is no exemption on Security Deposit/ Performance Bank Guarantee under the Policy”.
• Nothing for traders, distributors, sole agents or works contracts. The FAQ places them outside the order: “traders/ distributors/ sole agent/ Works Contract are excluded from the purview of Public Procurement Policy for MSEs Order,2012”.
• Nothing beyond central procurement. The order binds central ministries, departments and central public sector enterprises. A state tender's MSE clause is its own state's.

A reader who remembers a period when no tender asked for earnest money at all is remembering a time-bound direction that has since lapsed, not a change to this order; what it said, and when it stopped applying, is on EMD exemptions and the bid-securing declaration. What is held back after an award (the performance security and the retention on a works bill) is on after you win, and the map of every sum a bid ties up is money in a bid.

What to check in the tender, and how you prove it

The order does not apply itself. It reaches you through a clause in one tender document, so four checks come before any claim.

1. The MSE clause itself. Find it, and read what this buyer says it grants: free tender sets, the earnest-money exemption, the preference, or only some of them.
2. Whether the contract is a works contract. If it is, the exclusion above is the first thing to settle, not the last.
3. What proof is asked for and in what form. The status the order benefits is that of a micro or small enterprise, and Udyam registration is what shows a buyer you hold it. A DPIIT-recognised start-up is a separate status under the rules, not a benefit of this order.
4. What the exemption does not cover. An exemption claimed at bid stage says nothing about the security held after award.

An exemption you cannot document is not a saving; it is a rejection at technical evaluation, and the standard grounds are on why bids are rejected at technical evaluation. The rulebook the clause sits inside is on the rules, and what a bidder needs in place before any of this matters is before you can bid.