2024 S C M R 947

[Supreme Court of Pakistan]

Present: Syed Mansoor Ali Shah, Jamal Khan Mandokhail and Athar Minallah, JJ
PROVINCE OF PUNJAB through Secretary C&W, Lahore and others---Appellants
Versus
Messrs HAROON CONSTRUCTION COMPANY, GOVERNMENT CONTRACTOR
and others---Respondents
C.P.L.As. Nos. 2226-L of 2021 to C.P.L.A. No. 2241-L of 2021, C.P.L.As. Nos. 2253-L of
2021 to C.P.L.A. No. 2255-L of 2021, C.P.L.A. No. 2270-L of 2021, C.P.L.A. No. 2277-L of
2021, C.P.L.As. Nos. 371-L of 2022 to C.P.L.A. No. 373-L of 2022 and C.P.L.A. No. 3396-L
of 2022, decided on 20th February, 2024.
(Against the judgment(s) of Lahore High Court Lahore all dated 30.09.2021, passed in I.
C.A. No.18231 of 2021, etc.).
(a) Punjab Procurement Rules, 2014---
----Rr.27 & 56---Tenders for construction works---Bidding documents---Additional
performance security imposed by procuring agency---Legality---Bidding documents should
comply with the Punjab Procurement Rules, 2014 (Rules) especially Rules 27 and 56---
Procuring agency cannot introduce additional security in violation of the Rules---Procuring
agency cannot require the bidder to pay additional performance security over and above the
bid security and performance guarantee provided under Rules 27 and 56 of the Rules.
The imposition of additional security not only disincentivizes the contractors trying to
submit competitively low bids, but it also defies logic as the successful bidder has to give
lesser security than the lowest bidder, who might not be a successful bidder,
eventually. Where the lowest bidder becomes the successful bidder, he will have to furnish
two securities while any other bidder who is not the lowest bidder, but has been declared
successful bidder, must only furnish one security. This incongruence in the bidding
documents leads to discrimination and offends the principles of public procurement.
Therefore, compliance to the regulator framework becomes mandatory in public procurement
to uphold the foundational principles of public procurement. Therefore, in the present case
the insertion of additional performance security in the Bid Document and the follow up
clauses dealing with the consequence of non-payment of additional performance security in
the bidding document are beyond the scope of the Punjab Procurement Rules, 2014 (Rules)
being inconsistent with Rules 27 and 56 of the Rules. Consequently, the Supreme Court set
aside the demand raised for the payment of additional performance security by the
procurement agencies as being unlawful and violative of the Rules, and directed that any
additional security to be imposed on a contractor can only be introduced through Rules to be
framed by the Government so that the principles of procurement are met and there is
transparency, level playing-field and non-discrimination in public procurement.
(b) Punjab Procurement Rules, 2014---
---R.68---Procurement---Bidding documents, dispute over---Mediation-- Significance of
mediation and pro mediation bias of courts explained.
 Courts must encourage out of court settlements through Alternate Dispute Resolution
( ADR ), in particular mediation. The essence of mediation lies in its voluntary and
confidential process, where a neutral third party, the mediator, assists disputants in reaching
a consensus. Unlike in litigation, where the outcome is often a zero-sum game, mediation
thrives on the principle of win-win solutions, preserving relationships and allowing for
creative resolutions that legal parameters might not accommodate.
Justice Sandra Day O'Connor, Speech at the Minnesota Conference for Women in the
Law, April 1985 ref.
Mediation, as a form of alternative dispute resolution (ADR), has garnered widespread
acclaim for its efficiency, cost-effectiveness, and ability to facilitate amicable settlements. In
contrast to the adversarial nature of litigation, mediation embodies a collaborative approach,
encouraging parties to find mutually beneficial solutions. The courts should not only
encourage mediation but also exhibit a pro-settlement bias and a pro-mediation bias. Pro-
mediation bias or pro-settlement bias means a predisposition or preference within the legal
system for resolving disputes through mediation rather than through litigation or other forms
of dispute resolution. This bias is not about favoring one party over another but rather about
favoring the process of mediation itself as a preferred method of dispute resolution. This bias
is grounded in the belief that settlements are generally more efficient and satisfactory for all
parties involved compared to outcomes determined by a court. Courts may exhibit a pro-
settlement bias by encouraging parties to settle even before the case goes to trial or during
the litigation process.
By fostering a pro-settlement bias, courts can contribute to a more harmonious and
efficient dispute resolution landscape, where parties are empowered to resolve conflicts
collaboratively and constructively. Encouraging mediation aligns with the broader goals of
justice systems worldwide: to resolve disputes in a manner that is fair, efficient, and
conducive to the long-term well-being of all involved parties.
Final Report to the Lord Chancellor on the Civil Justice System in England and Wales,
HMSO, July 1996 ref.
Ms. Samia Khalid, Addl. A.G. Pb., Zakir Shah, SLO, C&W., Rana Azhar, S.E. Highway
and Muhammad Usama, XEN, Mian Muhammad Kashif, Advocate Supreme Court, Assisted
by: Ms Alizeh Akbar, Advocate (in C.P. No. 2277-L of 2021) and Ch. Muhammad Sarwar,
Advocate Supreme Court (in C.P. No. 3396-L of 22) for Petitioners.
Mian Muhammad Kashif, Advocate Supreme Court and Ch. Muhammad Sarwar,
Advocate Supreme Court for Respondents (in C.P. No. 2228-L of 2021).
Muhammad Younis, Contractor (In person)
Date of hearing: 20th February, 2024.
ORDER
SYED MANSOOR ALI SHAH, J.---Brief facts of the case are that through public
advertisement made by different procuring agencies 1 i.e., Communication and Works
Department and Irrigation Department of the Government of the Punjab and Punjab Local
Government, tenders were sought for various construction works. In pursuance thereof, the
contractors submitted their bids. Clause 26(A) of the General Directions for the Guidance of
the Tenderers (Bid Document) provided that if there is a difference between the total
tendered amount and the approved estimated amount, the lowest bidder shall deposit
additional performance security ranging from 5% to 10% of the difference. Through
impugned letters dated 29.12.2020 and 18.01.2021 issued by the Executive Engineer,
Highway Division, Gujranwala and Narowal, respectively, demand was raised against the
contractors for the payment of additional performance security. The contractors challenged
the said demand before the High Court, where the claim of the contractors was dismissed
vide impugned judgment while interpreting Rule 56 of the Punjab Procurement Rules, 2014
("Rules"). The private contractors, the Provincial Government and the procuring agencies are
all aggrieved of the impugned judgement for different reasons but primarily regarding the
interpretation of Rule 56 of the Rules, hence these petitions.
2. The central question before us is whether the procuring agency could require the bidder
to pay additional performance security over and above the bid security and performance
guarantee provided under Rules 27 and 56 of the Rules. In other words, can the bidding
documents include terms and conditions of the tender which are over and above or
inconsistent with the Rules.
3. Learned Additional Advocate General representing the Provincial Government and the
procuring agencies submits that the Punjab Procurement Regulatory Authority Act 2009
("Act") and the Rules do not bar the procuring agency from including additional performance
security in the bidding documents and therefore there is no violation of the Rules. Clauses
26(A), 26(B) and 15 of the bidding documents provide for the additional performance
security, its rates and the consequence of on non-payment of the said security.
4. On the other hand, learned counsel for the private contractors submit that the bidding
documents are to be regulated by the Act, as well as, the Rules and in the presence of Rules
27 and 56 the bidding documents cannot provide for additional security by violating the
upper limit on securities provided under the Rules. He submits that Rule 27 provides that bid
security shall not exceed 5% of the estimated price while Rule 56 provides that performance
guarantee dealing with the successful bidder shall not exceed 10% of the contract amount
and there is no provision under the Rules for any additional performance security at any
stage of the bidding.
5. We have gone through the provisions of the Act, as well as the Rules. The preamble to
the Act provides for the establishment of the Procurement Regulatory Authority for
regulating procurement of goods, services and works in the public sector. Public
procurement2 means procurement of goods, works or services by a procuring agency wholly
or partly financed out of the Provincial Consolidated Fund or the Public Account of the
Province or funds of a procuring agency. Procuring agency 3 means a department of the
government or an autonomous body of the government, a local government, etc. The
functions and powers entrusted to the Authority under the Act are geared towards improving
governance, management, transparency, accountability and quality of public procurement.
These functions and powers include: monitoring the application of laws, rules, regulations
relating to public procurement; making regulations and laying down codes of ethics and
procedures for public procurement; establishing performance indicators for public
procurement; preparing standard documents to be used in connection with public
procurement; presenting an annual report to the government regarding overall functioning of
the public procurement system; and make rules for carrying out the purposes of the Act.
6. The Rules promulgated by the Government for carrying out the purposes of the Act,
inter alia, define; "bidding documents", "bid security" and "performance guarantee 4." Rule 4
lays down the principles of procurement i.e., (i) procurement to be in a fair and transparent
manner (ii) the object of procurement is to bring value for money to the procuring agency
and (iii) the procurement process be efficient and economical. Under the Rules the procuring
agency is to use standard bidding documents as and when notified under the regulations and
until the standard bidding documents are specified under the regulations, a procuring agency
may use bidding documents already in use of the procuring agency to the extent that they are
not inconsistent with the Rules. 5 And any violation of these Rules amounts to mis-
procurement6. Rules 27 and 56 provide for bid security and performance guarantee in the
following manner:
27. Bid security.---The procuring agency may require the bidders to furnish a bid security
not exceeding five per cent of the estimated price.
Explanation.---In this rule, the words 'estimated price' mean the price of procurement
estimated by the procuring agency before initiation of the process of procurement.
56. Performance guarantee.---Where needed and clearly expressed in the bidding
documents, the procuring agency shall require the successful bidder to furnish a
performance guarantee which shall not exceed ten percent of the contract amount.
7. The above regulatory framework provides a stable and predictable environment for both
the procuring agency and the contractor. Deviating from this framework can create
uncertainty and confusion, potentially deterring qualified bidders from participating in the
procurement process and possibly leading to disputes or litigation. One of the fundamental
principles of public procurement is compliance with the law. Procurement activities must
adhere to the legal and regulatory framework established by the law. Introducing new terms
and conditions outside or inconsistent to the regulatory framework under the law can
compromise the fairness and transparency of the public procurement process. It could lead to
perceptions or instances of bias, unfair advantage, or discrimination against certain bidders,
which undermines the integrity of the public procurement process.
8. According to Organization for Economic Co-operation and Development ("OECD"),
public procurement is the regulation of principles, rules and procedures applied to States in
order to implement efficient processes when acquiring goods, services or works, and comply
with its' policy objectives. 7 It is within this context that the OECD Principles for Enhancing
Integrity in Public Procurement come into play which are primarily directed at policy makers
in governments at the national level, but may also offer guidance for sub-national
government and state-owned enterprises. These Principles provide a policy instrument for
enhancing integrity in the entire public procurement cycle and take a holistic view by
addressing various risks to integrity, from needs assessment, through the award stage,
contract management and up to final payment. These twelve (12) Principles 8 are anchored in
four pillars9 namely transparency, good management, prevention of misconduct and
accountability and control in order to enhance integrity in public procurement and, inter alia,
include; (i) Transparency; providing an adequate degree of transparency in the entire
procurement cycle in order to promote fair and equitable treatment for potential suppliers, (ii)
Integrity; preserving the integrity of the public procurement system through general standards
and procurement specific safeguards, (iii) Access; facilitating access to procurement
opportunities for potential competitors of all sizes, (iv) Balance; recognizing that any use of the
public procurement system to pursue secondary policy objectives should be balanced against
the primary procurement objective, (v) Participation; fostering transparent and effective
stakeholder participation, (vi) Efficiency; developing processes to drive efficiency throughout
the public procurement cycle while satisfying the needs of the government and its citizens,
(vii) E -procurement; improving the public procurement system by harnessing the use of digital
technologies to support appropriate e-procurement innovation through the procurement cycle,
(viii) Capacity; developing a procurement workforce with the capacity to continuously deliver
value for money efficiently and effectively, (ix) Evaluation; driving performance
improvements through evaluation of the effectiveness of the public procurement system from
individual procurements to the system as a whole, at all levels of government where feasible
and appropriate, (x) Risk Management; integrating risk management strategies for mapping,
detecting and mitigating throughout the public procurement cycle, (xi) Accountability;
applying oversight and control mechanisms to support accountability throughout the public
procurement cycle, including appropriate complaint and sanction processes, (xii) Integration;
supporting integration of public procurement into overall public finance management,
budgeting and service delivery processes.
9. The regulatory framework under the Act and the Rules closely monitors and regulates
public procurement and provides for the bidding documents, the steps to be taken during
public procurement and the securities that can be furnished by a contractor, which include
bid security and performance guarantee. The Authority under the Act is to lay special
emphasis on the governance, management, transparency, accountability, and quality of public
procurement. While the global guideline on public procurement developed by OECD mentions
fundamental pillars of public procurement as: transparency, good management, prevention of
misconduct and accountability and control. Therefore, to enhance integrity in public
procurement; transparency, level playing-field, standardization of bidding documents and
uniformity of compliance of the regulatory framework are essential ingredients that cannot be
waived or comprised. It is to uphold these guiding principles that the procuring agency cannot
go beyond the regulatory framework and introduce terms in the bidding documents that are
inconsistent to the regulatory regime under the Act, Rules, etc. In this case strangely the
additional performance security is sought from the lowest bidder and not from the successful
bidder who is to deposit only performance guarantee (mentioned in the bidding document as
performance security). The imposition of additional security not only disincentivizes the
contractors trying to submit competitively low bids, but it also defies logic as the successful
bidder has to give lesser security than the lowest bidder, who might not be a successful bidder,
eventually. Where the lowest bidder becomes the successful bidder, he will have to furnish two
securities while any other bidder who is not the lowest bidder, but has been declared successful
bidder, must only furnish one security. This incongruence in the bidding documents leads to
discrimination and offends the principles of public procurement discussed above. Therefore,
compliance to the regulator framework becomes mandatory in public procurement to uphold
the foundational principles of public procurement. Therefore, insertion of additional
performance security in clause 26(A) and the follow up clauses 26(B) and 15 dealing with the
consequence of non-payment of additional performance security in the bidding document are
beyond the scope of the Rules being inconsistent with Rules 27 and 56 of the Rules.
Consequently, the demand raised for the payment of additional performance security vide
letters 29.12.2020 and 18.01.2021 by the procurement agencies along with the above clauses
are set aside being unlawful and violative of the Rules. Any additional security to be imposed
on a contractor can only be introduced through Rules to be framed by the Government so that
the principles of procurement are met and there is transparency, level playing-field and non-
discrimination in public procurement.

10. We have notice that Rule 68 of the Rules provides that after the coming into force of the
procurement contract, disputes between the parties to the contract shall be settled through
mediation or arbitration. The words of Justice Sandra Day O'Connor are telling: "The courts of
this country should not be the places where resolution of disputes begins. They should be the
places where the disputes end after alternative methods of resolving disputes have been
considered and tried."10 Even though in the instant case alternate dispute resolution mechanism
was not available as interpretation of the Act and the Rules were involved, which is best left to
the court of law, we wish to underline that courts must encourage out of court settlements
through Alternate Dispute Resolution ("ADR"), in particular mediation. The essence of
mediation lies in its voluntary and confidential process, where a neutral third party, the mediator,
assists disputants in reaching a consensus. Unlike in litigation, where the outcome is often a
zero-sum game, mediation thrives on the principle of win-win solutions, preserving relationships
and allowing for creative resolutions that legal parameters might not accommodate. "The notion
that ordinary people want black-robed judges, well-dressed lawyers, and fine paneled courtrooms
as settings to resolve their disputes is incorrect. People with problems, like people with pains,
want relief, and they want it as quickly and inexpensively as possible."11

11. Mediation, as a form of alternative dispute resolution (ADR), has garnered widespread
acclaim for its efficiency, cost-effectiveness, and ability to facilitate amicable settlements. In
contrast to the adversarial nature of litigation, mediation embodies a collaborative approach,
encouraging parties to find mutually beneficial solutions. The courts should not only encourage
mediation but also exhibit a pro-settlement bias and a pro-mediation bias. By Pro-mediation
bias or pro-settlement we mean a predisposition or preference within the legal system for
resolving disputes through mediation rather than through litigation or other forms of dispute
resolution. This bias is not about favoring one party over another but rather about favoring the
process of mediation itself as a preferred method of dispute resolution. This bias is grounded in
the belief that settlements are generally more efficient and satisfactory for all parties involved
compared to outcomes determined by a court.

12. Prominent legal scholars and jurists, including the likes of Roger Fisher and William Ury,
authors of the seminal work "Getting to Yes," advocate for mediation. They emphasize its
potential to produce outcomes that are more satisfactory to all parties involved, compared to the
often rigid and polarizing verdicts of court proceedings. Their work underscores the importance
of interests over positions, encouraging parties to seek common ground rather than entrenching
themselves in adversarial stances. For instance, in "Judging Civil Justice," legal scholar Hazel
Genn discusses the encouragement of settlement as a way to reduce court caseloads and
promote the efficient use of judicial resources. Courts may exhibit a pro-settlement bias by
encouraging parties to settle even before the case goes to trial or during the litigation process.

13. By fostering a pro-settlement bias, courts can contribute to a more harmonious and efficient
dispute resolution landscape, where parties are empowered to resolve conflicts collaboratively
and constructively. Encouraging mediation aligns with the broader goals of justice systems
worldwide: to resolve disputes in a manner that is fair, efficient, and conducive to the long-term
well-being of all involved parties. "In the future, it is likely that the traditional trial will be the
exception rather than the rule."12
14. In this view of the matter, the impugned judgments are set aside and
C.P.L.A.2226-L/2021 to C.P.L.A.2241-L/2021, C.P.L.A.2253-L/ 2021 to
C.P.L.A.373-L/2022 are dismissed and leave declined; whereas C.P.L.A.2277-L/2021 and
C.P.L.A.3396-L/2022 are converted into appeals and allowed in the above terms.
MWA/P-8/SC Order accordingly.

1
See Section 2(l) of the Act.
2
Section 29(n) of the Act
3
Section 2(l) of the Act
4
Rules 2(g), (h) and (w).
5
Rule 25 (5) & (6)
6
Rule 69
7
Arciniegas Parra Juan David and Kabir Duggal, 'Public Procurement' Jus Mundi <

https://jusmundi.com/en/document/publication/en-public-procurement>
8
OECD, OCED Recommendation of the Council on Public Procurement (2015) <

https://www.oecd.org/gov/public-procurement/OECD-Recommendation-on-Public-Procurement.pdf>
9
OECD, OECD Principles for Integrity in Public Procurement (2009)

< https://www.oecd.org/gov/ethics/48994520.pdf>
10
Justice Sandra Day O'Connor, Speech at the Minnesota Conference for Women in the Law, April 1985
11
Attributed to: Warren E. Burger, former Chief Justice of the United States
12
Lord Woolf, Harry, Access to Justice: Final Report to the Lord Chancellor on the Civil Justice System in

England and Wales. HMSO, July 1996.