CSR (Corporate Social Responsibility) in PSU Contracts

Corporate Social Responsibility in the PSU procurement context refers to two related but distinct phenomena. First, Public Sector Undertakings themselves are among the largest CSR spenders in India, because the Companies Act 2013 mandates that companies with net worth above Rs 500 crore, turnover above Rs 1,000 crore, or net profit above Rs 5 crore must spend 2% of average net profit of the preceding three years on CSR activities. Most major PSUs, NTPC, ONGC, SAIL, Coal India, IOCL, HPCL, meet these thresholds by wide margins and collectively spend thousands of crore rupees per year on CSR. This CSR spending generates procurement contracts for implementing agencies. Second, some large government project contracts, particularly in mining, hydro power, and infrastructure, include contract conditions requiring the main contractor to undertake specified community development or environmental mitigation activities in the project area, which are sometimes described as CSR obligations in the contract.

What is CSR in PSU contracts?

PSU CSR procurement does not follow GFR 2017. PSUs are required under DPE (Department of Public Enterprises) guidelines to maintain a CSR policy, a CSR committee of the board, and annual CSR accounts. The DPE CSR guidelines direct PSUs to focus CSR spending in the project area and surrounding communities, meaning that if NTPC has a power plant in a specific district, its CSR projects must primarily benefit that district's residents.

PSU CSR tenders, for schools, hospitals, sanitation facilities, skill training centres, community halls, and similar social infrastructure, are floated by the PSU's CSR department and published on the PSU's own portal and on CPPP. Unlike regular works tenders, CSR procurement often has more flexible eligibility criteria, welcomes NGOs and social enterprises as bidders alongside conventional contractors, and sometimes uses the QCBS (Quality and Cost Based Selection) model rather than pure L1.

The second form of CSR in PSU contracts is the contractual CSR obligation embedded in large mining or hydro project contracts. When a mining PSU awards a large overburden removal or coal handling contract, the main contract may include a clause requiring the contractor to contribute a specified amount per tonne mined (or per crore of contract value) to a community development fund managed jointly by the PSU and district administration. Bidders must price this contribution into their unit rates.

Why it matters for bidders

For companies implementing CSR projects, PSU CSR tenders offer a different competitive environment than regular government tenders. The pool of competitors is more diverse (including NGOs and development sector organisations), the evaluation often gives weight to qualitative criteria (past CSR project experience, community engagement methodology), and the payment timelines are often better because CSR budgets are committed rather than dependent on budget release cycles.

For contractors bidding on large PSU works contracts with embedded CSR obligations, the CSR contribution must be explicitly calculated and included in the unit rate. Failure to include it means the contractor is effectively bearing the contribution from its margin, a cash flow drain that, on a large multi-year contract, can be substantial.

For CSR-spending PSUs themselves, procurement efficiency in CSR spending is increasingly monitored by auditors and the CAG. The Companies Act (Amendment) 2020 tightened CSR compliance: unspent CSR funds must now be transferred to a designated national fund or a specified escrow account within defined deadlines, rather than simply carried forward, creating pressure on PSU CSR departments to complete procurement and project implementation efficiently.

Example

ONGC, operating an oil production cluster in a tribal-majority district of a state, floats a CSR tender for construction of a 30-bed community health centre in the project area. The NIT specifies: (a) the implementing agency must have completed at least one similar community health centre or primary health centre building in the past five years, or be an NGO with at least five years of health sector project management experience; (b) QCBS evaluation with 60:40 technical-to-financial weightage; (c) minimum qualifying technical score of 65 out of 100. A construction company with prior rural hospital construction experience submits a competitive bid, scoring 72 on technical and quoting a cost that gives the highest combined QCBS score. It wins the contract and implements the project under ONGC's CSR department oversight.

Key rules / thresholds

• Companies Act 2013 Section 135: 2% of average net profit of preceding three financial years to be spent on CSR annually.
• DPE CSR guidelines: PSU CSR must prioritise Schedule VII activities (education, healthcare, environment, rural development, skill training, etc.) with priority to project-affected areas.
• Companies Act (Amendment) 2020: unspent mandatory CSR must be transferred to designated government funds (PM-CARES, national disaster fund, etc.) or a specified escrow account within defined deadlines.
• PSU CSR projects above Rs 25 lakh must be published on CPPP; below this threshold PSUs may use limited tender or direct award.