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Official Citation: 2025 PLD 379
Court / Jurisdiction: Lahore High Court
Year of Decision: 2023
Decision Date: 2023-12-31
Parties: M/s Jalal Construction Company vs The Secretary, C & W Department, JUDGMENT
Ruling Summary: This decision was rendered by the Lahore High Court on 2023-12-31, officially reported as 2025 PLD 379. In this matter between M/s Jalal Construction Company and The Secretary, C & W Department, JUDGMENT, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.
Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.
Case cited as PLD 2025 Lahore 379
Court Name: Lahore High Court Judge(s): Abid Hussain Chattha Title:M/s Jalal Construction Company vs The Secretary, C & W Department,
JUDGMENT
Reported As: 2024 LHC 329, PLD 2025 Lahore 379 Result: Petition Disposed of Judgment JUDGMENT ABID HUSSAIN CHATTHA, J: This Judgment shall decide the titled and 107 identical Writ Petitions specified in Annexure-A hereof involving common questions of law emanating from similar set of facts. For ease of reference, the Petitioners and the Respondents in the titled and connected Petitions shall hereinafter be collectively referred to as (the "Petitioners") and (the "Respondents"), respectively unless otherwise expressly stated. 2. The necessary factual context germane to the controversy is that the Petitioners are Government Contractors who participated in various tenders floated by multiple procurement agencies operating under the ambit of the Federal Government or the Provincial Government of Punjab. After having being declared as the lowest bidder or successful bidder, as the case may be, the Petitioners were required by the Respondents to deposit securities of specified amount in terms of performance security or additional performance security / quality assurance security in the form of bank guarantee by specifically excluding insurance bond / guarantee from an insurance company having at least AA rating from PACRA / JCR under the applicable procurement laws, rules and Standard Bidding Documents (the "SBDs"). Accordingly, the Petitioners impugned letters issued by the Procuring agencies demanding performance or additional performance / quality assurance securities via bank guarantees by excluding insurance bond / guarantee from an insurance company. In some of the Petitions, Circular dated 29.07.2020 issued by the Punjab Procurement Regulatory Authority (the "Authority") constituted under the Punjab Procurement Regulatory Authority Act, 2009 (the "PPRA Act, 2009") is also challenged which endorses the decision of the
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procuring agencies in the Province of Punjab to exclude insurance bond / guarantee from an insurance company as a form of security in the SBDs. 3. Before proceeding further, it is clarified that different types of securities are required from bidders in a typical procurement process through the SBDs. The first is referred to as 'bid security' which is generally taken from all bidders as an expression of their seriousness in order to participate in the bidding process. The second is termed as 'performance security / guarantee' which is required from a successful bidder to ensure due performance of the contract. The third is called 'additional performance security / guarantee or quality assurance security / guarantee' which is demanded from the lowest bidder who quotes a bid lower than the estimated bid price of the contract determined by a procuring agency to ensure that the quality of the contract project is not compromised or the same is not abandoned before its completion. The matter in issue in the titled and connected Petitions pertains to performance or additional performance / quality assurance securities as opposed to bid security. It is importantly noted that initially, the lowest or successful bidders in the Province of Punjab raised the question qua quantum of performance guarantee or additional performance guarantee / quality assurance guarantee in terms of Clauses 26-A and 26-B read with Clause 15 of the General Directions of SBDs with reference to Rule 56 of the Punjab Procurement Rules, 2014 (the "Rules, 2014") framed under the PPRA Act, 2009 which was addressed and resolved by Single Bench and Division Bench of this Court in cases titled, "Messrs Ghulam Muhammad & Sons v. Water and Sanitation Agency (WASA), Faisalabad through Director General and others" (2022 MLD 1216); and "A.M. Construction Company (Private) Limited v. Province of Punjab through Secretary Communication and Works Department and others" (2023 CLC 616), respectively. In some of the Petitions, the issue has been raised again which is declined to be answered as having been previously addressed. Therefore, the only alive issue is with respect to the form or kind of security with respect to performance, additional performance / quality assurance guarantee which may be required by the Respondents from the successful or the lowest bidders. 4. The controversy has emanated in the context of a peculiar legal paradigm. Public procurement by institutions falling under the ambit of the Federal Government is being carried out under the umbrella of the Public Procurement Regulatory Authority Ordinance, 2002 (the "PPRA Ordinance, 2002") which provides for the establishment of the Public Procurement Regulatory Authority (the "Authority") for regulating procurement of goods, services and works in the public sector. The PPRA Ordinance, 2002 is supplemented with the Public Procurement Rules, 2004 (the "Rules, 2004") framed by the Federal Government read with the Public Procurement Regulations, 2008 (the "Regulations, 2008") framed by the Authority. However, public procurement by provincial institutions is being regulated under the respective provincial laws. In the Province of Punjab, PPRA Act, 2009 and the Rules, 2014 together constitute the applicable procurement framework. The Authority constituted under the PPRA Act, 2009 serves as an apex regulatory body qua procurement. 5. At the same time, the Pakistan Engineering Council (the "PEC") established under Section 3(1) of the Pakistan Engineering Council Act, 1975 (the "PEC Act") as part of its functions also develops SBDs for engineering contracts. The SBDs prepared by PEC with respect to permissible forms of securities to be tendered by lowest or successful bidders, inter alia, include an insurance bond / guarantee from an insurance company having AA rating from PACRA / JCR. The Executive Committee of National Economic Council (the "ECNEC") in its meeting held on 12.11.2007 directed all procurement agencies of the Federal, Provincial and Local Governments throughout Pakistan to use SBDs prepared by PEC. The decision was notified by the Planning Commission, Planning and Development Division, Government of Pakistan vide Notification No. 8(6)WR/PC/2008 dated 12.02.2008. Since then, SBDs of PEC are being largely employed in the procurement process by the
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procuring agencies of the Federal, Provincial and Local Governments throughout Pakistan. However, lately the Authority in the Province of Punjab notified SBDs excluding insurance bond / guarantee from an insurance company having AA rating from PACRA / JCR as a permissible form of guarantee. Some Federal procuring agencies followed the Province of Punjab. This exclusion essentially ignited the dispute between the successful or lowest bidders and procuring agencies. 6. The contentions of the Petitioners are that PEC has statutory mandate to develop and prescribe SBDs which have been made and since long are being used by all private and public stakeholders including all procuring agencies of the Federal, Provincial and Local Governments throughout Pakistan in all engineering contracts. The SBDs of PEC define 'performance security' as 'bank guarantee or any other security' and as such, in addition to bank guarantee also allow tendering of securities in terms of performance security or additional performance security / quality assurance security in the shape of insurance bond / guarantee from insurance companies having AA rating from PACRA / JCR. The decision of ECNEC taken in its meeting dated 12.11.2007 and notified by the Planning Commission vide Notification dated 12.02.2008 mandatorily obligates all procuring agencies of Federal, Provincial and Local Governments throughout Pakistan to use SBDs of PEC. Hence, no procuring agency can prepare and float SBDs with variations from those prepared by PEC and mandated by ECNEC. Accordingly, the lowest or successful bidders are vested with a legal right to submit securities as per Clause 10.1 of the SBDs of PEC at their option in the form of either (a) bank guarantee from any Scheduled Bank in Pakistan or (b) bank guarantee from a bank located outside Pakistan duly counter-guaranteed by a Scheduled Bank in Pakistan or (c) an insurance company having at least AA rating from PACRA / JCR. Therefore, the Respondents by excluding insurance bond / guarantee from SBDs floated by them are in breach of statutory command of the PEC Act and the decision of ECNEC. The Petitioners further state that the act of the Respondents to exclude insurance bond / guarantee in the SBDs offends the non-discrimination guarantee accorded to the Petitioners under Article 25 of the Constitution of the Islamic Republic of Pakistan, 1973 (the "Constitution") and is also against Rule 32 of the Rules, 2004 and Rule 34 of the Rules, 2014 which stipulate that save as otherwise provided, no procuring agency shall introduce any condition which discriminates between bidders or which is difficult to meet and in ascertaining the discriminatory or difficult nature of any condition, reference shall be made to the ordinary practices of that trade, manufacturing, construction business or service to which that particular procurement is related. Reliance is also placed on an unreported decision dated 04.10.2022 of Single Bench of this Court in W.P. No. 72544 / 2021 in case titled "M/s RMS Pvt. Ltd. v. Govt. of the Punjab & others" to support the contentions stated above in which deviation from SBDs of PEC was termed as unlawful with respect to exclusion of insurance bond / guarantee by a procuring agency in the Province of Punjab, notwithstanding that the decision for now has been suspended by a Division Bench of this Court. Hence, it is asserted that the successful or lowest bidders are entitled to give performance or additional performance / quality assurance securities through an insurance bond / guarantee from an insurance company apart from bank guarantee. 7. Learned Law Officers and learned counsels for the Respondents submit that SBDs of PEC are not mandatory for the procuring agencies of the Federal, Provincial and Local Governments as PEC Act does not proclaim as such and is enacted to regulate engineering profession. SBDs of PEC merely serve as a benchmark for engineering contracts. The directions of ECNEC notified vide letter dated 12.12.2008 by the Planning Commission requiring all procuring agencies to use SBDs of PEC are in the nature of general advice which do not preempt or override express statutory provisions applicable to Federal or Provincial procuring agencies. Even otherwise, the decision of ECNEC in no way curtails the powers of a procuring agency to prescribe or exclude a particular form of guarantee as the same is permissible under the SBDs of PEC. Further, Clause 10.1 of the particular Conditions of SBDs of PEC requires submission of securities 'at the option of bidders' from the
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permissible forms of securities prescribed by the procuring agencies. Initially, SBDs framed by PEC were adopted and notified at the Federal level as the Authority under the PPRA Act, 2009 had not yet framed its own SBDs which allowed submission of securities through various modes including insurance bond / guarantee from an insurance company. However, as the subject of procurement does not figure in the Federal Legislative List under the Constitution, each Province is competent to legislate on this subject of procurement and has accordingly, put in place its own legislative frame-work including the Province of Punjab. Thus, the Federal legislative frame-work does not extend to or apply to the Provinces any more. Initially, such directions were followed in the Province of Punjab but after the promulgation of the PPRA Act, 2009 followed by the Rules, 2014, the Authority in compliance of statutory command has devised its own SBDs which have also been notified by the Department of Finance, Government of Punjab. Therefore, the directions of ECNEC contained in the letter dated 12.12.2008 on the administrative side have lost their relevance and no longer apply in the Province of Punjab. Even otherwise, National Economic Council or ECNEC under Article 156 of the Constitution has restricted general advisory mandate in terms of policy matters which does not extend to micro-manage the procurement process of a procuring agency existing under the Federal or Provincial Governments who under their applicable laws are free to prescribe the acceptable forms of guarantees to secure their funds which in essence is in line with the decision of ECNEC relied upon by the Petitioners. Such right of a procuring agency in the case of National Highway Authority has been recognized by the Division Bench of the High Court of Sindh in C.P. No. D-2779 / 2023 in case titled, "Nisar Ahmed Khan v. National Highway Authority and others" decided on 03.08.2023. Therefore, the procurement process at the Federal and Provincial levels is required to be undertaken strictly in conformity with the applicable particular legislative frame- work which does not prohibit the exclusion of insurance bond / guarantee as a form of security. Discrimination between bidders is required to be assessed with respect to a particular procurement process and has no nexus with different procurement processes. Moreover, the procurement process between the procuring agency and a contractor is based on mutual contractual obligations and any interference in constitutional jurisdiction is unwarranted especially when the bidders in a particular procurement take part in accordance with the terms and conditions of SBDs floated by a procuring agency. Therefore, the act of exclusion of insurance bond / guarantee from the permissible forms of securities by the procuring agencies is a conscious policy decision within their lawful domain in order to prevent public funds from being misused and to ensure that the tendered security can be realized in a timely manner in the event of default in performance of contract. As such, the impugned action is liable to be sustained. 8. From the rival contentions of the parties, the moot point requiring determination by this Court is as to whether the act of procuring agencies falling under the ambit of the Federal Government and the Provincial Government of Punjab to exclude insurance bond / guarantee from insurance companies as a form of security with respect to performance or additional performance / quality assurance security is lawful under the applicable procurement laws and the SBDs of PEC endorsed by ECNEC and notified by the Planning Commission, Government of Pakistan. 9. In order to examine the moot point, it would be beneficial to first explore the mandate of the PEC Act. It has been enacted with the primary objective to regulate engineering profession with the vision that it may function as a key driving force for achieving rapid and sustainable growth in all national, economic and social fields. The PEC Act in terms of Section 3 thereof establishes PEC as its primary instrumentality to achieve its objects. PEC is responsible to set and maintain realistic and internationally relevant standards of professional competence and ethics for engineers. PEC is vested with statutory mandate to license engineers and engineering institutions to ensure that they may competently and professionally promote and uphold standards. As such, PEC covers the entire spectrum of engineering disciplines and functions as an apex body to encourage and
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promote the pursuit of excellence in engineering profession. It is tasked to regulate the quality of engineering education and the practice of engineering in order to promote rapid growth in economic and social fields in Pakistan. Section 2(xxv) of the PEC Act defines "professional engineering work" as giving of professional advice and opinions, the making of measurements and layouts, the preparation of reports, computations, designs, drawings, plans and specifications and the construction, inspection and supervision of engineering works, in respect of matters stipulated in clauses (a) to (j) thereof. One such matter listed in clause (i) thereof, includes preparing SBDs or contract documents, construction cost data, conciliation and arbitration procedures, guidelines for bid evaluation, prequalification and price adjustments for construction and consultancy contracts. Section 8 thereof lists the functions of PEC and one such function specified in clause (p) thereof, pertains to establishing standards for engineering contracts, cost and services, whereas, clause (l) thereof, relates to assistance to the Federal Government as a Think Tank. 10. It is abundantly clear from an overview of PEC Act that its domain, scope and ambit is limited vis--vis regulation of various aspects of engineering profession and for matters ancillary thereto. The SBDs prepared by PEC in pursuit and in furtherance of engineering profession may be adopted by any public or private entity as there is no bar in using or consulting the same and may validly be regarded as benchmark for engineering contracts. However, the SBDs prepared by PEC are not sacrosanct and as such, the parties to a contract cannot be forced or compelled to adopt the same, if they choose any other SBDs with respect to their respective contracts. Hence, the procuring agencies of Federal, Provincial and Local Governments are not legally bound to adopt and adhere to the SBDs prepared by PEC under the PEC Act. Similarly, if the same are adopted by any public procuring agency, the latter is free to make amendments thereto in accordance with their peculiar requirements subject to applicable law. Therefore, the argument that since SBDs prepared by PEC allow tendering of securities by the bidders through insurance bond / guarantee, therefore, public procuring agencies are precluded to exclude the same from permissible forms of securities is misconceived. 11. At the heart of the controversy is the decision of ECNEC dated 12.11.2007 notified on 12.02.2008 by the Planning Commission, Government of Pakistan. In order to examine the legal impact and effect of the decision of ECNEC, it is imperative to examine the dictate of Article 156 of the Constitution which is reproduced as under:- "156. (1) The President shall constitute a National Economic Council which shall consist of-- (a) the Prime Minister, who shall be the Chairman of the Council; (b) the Chief Ministers and one member from each Province to be nominated by the Chief Minister; and (c) four other members as the Prime Minister may nominate from time to time. (2) The National Economic Council shall review the overall economic condition of the country and shall, for advising the Federal Government and the Provincial Governments, formulate plans in respect of financial, commercial, social and economic policies; and in formulating such plans it shall, amongst other factors, ensure balanced development and regional equity and shall also be guided by the Principles of Policy set out in Chapter 2 of Part-II. (3) The meetings of the Council shall be summoned by the Chairman or on a requisition made by one-half of the members of the Council. (4) The Council shall meet at least twice in a year and the quorum for a meeting of the Council shall be one-half of its total membership. (5) The Council shall be responsible to the Majlis-e-Shoora (Parliament) and shall submit an Annual Report to each House of Majlis-e-Shoora (Parliament)." 12. It is evident from bare perusal of Article 156 of the Constitution that the scope and mandate of National Economic Council is to review the general and overall economic conditions of the country
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and formulate plans regarding financial, commercial, social and economic policies with the primary objective to ensure balanced and sustainable development keeping in view regional equity in accordance with the principle of policy set out in Chapter 2 of Part-II of the Constitution. In this respect, it renders advice to the Federal and Provincial Governments. ECNEC is the Executive Committee of the National Economic Council to swiftly transact the business of National Economic Council. Rule 22 of the Rules of Business, 1973 (the "Rules of Business") as amended up to 01st December, 2021 stipulates the procedure regarding the functioning of ECNEC. Rule 22(5) thereof proclaims that members of ECNEC shall be appointed by the Prime Minister and its terms of reference shall be notified by the Cabinet Division with the approval of the Prime Minister. Vide Notification No. F.5/2/2018-Com dated 22.09.2021, the Prime Minister in terms of Rule 22(5) of the Rules of Business approved the terms of reference of ECNEC as under:- "(i) To consider and decide accordingly, Public Sector Development Program Schemes (Federal / Provincial), according to Sanctioning limits approved by the National Economic Council (NEC) and notified / issued by Ministry of Planning, Development and Special Initiatives from time to time; (ii) To allow changes, as deemed appropriate in plans initiated by the Planning Commission / Ministry of Planning, Development and Special Initiatives; (iii) To review policy issues relating to development projects / programs / plans before submission to the National Economic Council." 13. Thus, ECNEC, inter alia, is fully competent to render general policy advice and recommend measures qua spending of public funds and mode of execution of development works of the Federal and Provincial Governments. Record shows that a summary dated 06.11.2007 was submitted by the Planning Commission on "PEC Standard Bidding / Contract Documents", wherein, the proposal contained in paragraph No. 14 thereof was approved by ECNEC in its meeting held on 12.11.2007 as under:- "Approved the revised standard form of bidding/ contract documents listed in para 2 of Summary, prepared by Pakistan Engineering Council (PEC) for notification. a) Economic Affairs Division to include provisions in all loan agreements for use of PEC documents for procurement of engineering goods, works and services. b) Relevant Federal/ Provincial departments/ organizations will also adopt these documents. These rules/ regulations would prevail in case alternative procurement procedures/ regulations exist." 14. Following the aforesaid approval, Planning Commission, Planning & Development Division, Government of Pakistan vide Notification No. 8(60)WR/PC/2008 dated 12.02.2008 notified implementation of revised SBDs of PEC, the text of the same is reproduced as under:- "1. In pursuance of Executive Committee of National Economic Council's (ECNEC) decision taken its meeting held on 12th November, 2007, it is hereby notified that: a) The following revised standard form of bidding/contract documents prepared by Pakistan Engineering Council (PEC) a statutory body shall be applicable to procurement of all engineering goods, works and services. The Federal, Provincial, Departments/Organizations and District Governments will be responsible to implement the decision of ECNEC. i) Standard Form of Bidding Documents (Civil Works) dated June 11, 2007. ii) Standard Form of Bidding Documents for Procurement of Work (E&M) dated June 11, 2007. iii) Standard Form of Bidding Documents for Procurement of work (For Smaller Contracts) dated June 11, 2007. iv) Standard Form of Contracts for Engineering Consultancy Services (For Large Projects)-Time Based Assignments dated June 11, 2007.
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v) Standard Form of Contracts for Engineering Consultancy Services (For Large Projects) - For Lump Sum Assignments dated June 11, 2007. vi) Standard Form of Contracts for Engineering Consultancy Services (For Smaller Projects) dated June 11, 2007. b) The aforesaid documents have been hoisted on PEC website i.e. www.pec.org.pk and also available from PEC. c) Economic Affair Division will include provisions in all loan agreements for use of PEC documents for procurements of engineering goods, works and services. d) The above rules / regulations would prevail notwithstanding the existing procurement procedures / regulations. 2. This supersedes SRO No. 8(60)WR/PC/2002 dated 21stAugust 2002 on the subject." 15. Later, another Notification No. F.No.1(780)PP&H/PC/2007/ Vol-II dated 24.12.2009 was also issued by the Physical Planning & Housing Section of Planning and Development Division, Government of Pakistan regarding implementation of revised SBDs of PEC, the text of which is reproduced as under:- "1. The Prime Minister of Pakistan constituted a two member committee comprising Secretary, Ministry of Housing and Works and Member (Implementation & Monitoring), Planning Commission to review the proposals made by a delegation of APCA in a meeting held with the Prime Minister of Pakistan on 7th May, 2008 and submit recommendations for consideration of the ECC. 2. A series of meetings were held under the…
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