MSE benefits in government tenders: what a micro or small enterprise can claim

1. Who counts as an MSE for these benefits

The benefits are for micro and small enterprises (MSEs), as classified under the Micro, Small and Medium Enterprises Development Act 2006 and registered on the Udyam portal. Medium enterprises are not covered by the MSE procurement order, even though they hold a Udyam certificate too.

Two further points decide many cases:

• The activity on your Udyam certificate should cover what you are bidding for. A certificate for one line of work may not give you a benefit in another.
• The benefits are for goods an MSE makes and services it provides itself. Traders and distributors of other firms' goods are not covered.

The size limits for micro and small enterprises are set by notification and have changed over time. Check your classification on the Udyam portal rather than working it out yourself.

2. Where the benefits come from

The main source is the Public Procurement Policy for Micro and Small Enterprises Order 2012, made under the MSMED Act and amended since. It applies to central ministries, departments and central public sector enterprises. Among other things, it:

• Sets an annual goal for the share of their purchases that buyers make from MSEs, with sub-goals for MSEs owned by Scheduled Caste or Scheduled Tribe entrepreneurs and by women.
• Reserves a list of items that these buyers should buy only from MSEs.
• Provides free tender documents and exemption from EMD for registered MSEs.
• Gives MSEs a purchase preference in some tenders.

The Ministry of Finance's procurement rules add relaxations of prior turnover and experience. State governments and their bodies follow their own MSE policies, which can differ.

3. Free tender documents and no EMD

These are the benefits MSEs use most. Where the bid document offers them, a registered MSE does not pay the tender fee or lodge an EMD. You still have to claim them: attach the Udyam certificate where the bid asks for it, and fill in the exemption in the portal or the form.

The exemption is from the EMD only. Do not assume it covers the performance security the winner gives after the award. See what is EMD in a tender for the details.

4. Purchase preference: matching the lowest price

Purchase preference gives an MSE a second chance on price. In broad terms, when the lowest bid (L1) is not from an MSE, an MSE whose price is within a stated margin of L1 may be offered all or part of the order, if it agrees to match the L1 price. The margin, the share of the order and the conditions are set by the order and stated in the bid document.

On GeM, the bid shows whether MSE purchase preference applies. If the tender also gives a Make in India preference, the bid document says how the two work together.

Decide before you bid whether you could supply at the L1 price. If you could not, the preference is of no use to you, and your price should stand on its own.

5. Relaxed turnover and experience conditions

The Ministry of Finance allows buyers to relax the prior turnover and prior experience conditions for MSEs and for DPIIT-recognised startups, provided they meet the quality and technical specifications. On GeM, the bid says whether MSEs get a relaxation of the years of experience and turnover condition, and some bids state the relaxed values.

Three cautions apply:

• The relaxation is the buyer's choice. Many tenders, especially large works, do not offer it.
• It covers turnover and experience. It never relaxes the technical specification, the quality standard or the certifications asked for.
• If the bid document is silent or unclear, ask before the pre-bid date rather than assume.

What to check in a tender's eligibility criteria goes through the other conditions.

6. How to claim, step by step

1. Keep your Udyam registration current, and check that its name, address and activity match your GST and PAN records.
2. Keep your MSE details up to date in your seller or bidder profile on each portal you use.
3. In each bid, find the lines on MSE exemption, purchase preference and relaxation, and note what proof each asks for.
4. Attach the Udyam certificate, and any declaration the bid asks for, in the place the bid asks for it.
5. Claim each benefit in the portal or the form. Do not assume the evaluator will apply it for you.
6. Keep a copy of what you submitted, in case the claim is questioned.

7. After you win: getting paid on time

The MSMED Act 2006 also protects MSE suppliers after the sale. A buyer must pay within the time the Act allows, and owes interest on late payment. An MSE can take a delayed payment case to a Micro and Small Enterprises Facilitation Council, and can file it online on the Ministry's MSME Samadhaan portal. Check the current time limits in the Act and on the portal before you rely on them.

8. Mistakes that cost MSEs the benefit

• Claiming an exemption without attaching the Udyam certificate.
• A Udyam activity that does not cover the item being bought.
• A name on the Udyam certificate that does not match the bidder's name.
• Assuming a state buyer follows the central MSE order.
• Assuming a relaxation the bid document does not offer.

Tenderlytix helps you spot what a tender offers. The free tender check lists the EMD and eligibility highlights of a tender PDF. In the workspace it shows the line any EMD exemption was read from, and if you tick your Udyam certificate once in your company profile, each tender's documents list shows it as held. It cannot tell you whether a buyer will accept your claim, so check the bid document.