Atul Kumar from Mumbai International Airport Limited shares views on L1 Bidding System

L1 worked well when companies had strong processes and experienced teams, but with aggressive new entrants and price-only evaluation, quality and safety are increasingly compromised.

Atul Kumar
PMP, MRICS
General Manager
Mumbai International Airport Limited

Evolution of the L1 Bidding System

The L1 bidding system is an age-old, widely accepted approach practiced in India. It worked well in the past when construction companies followed an organic and incremental growth path. Conventional companies had robust databases, strong processes, and highly experienced staff with an average tenure of over 15 years in the same organization. Their quoting philosophy was aligned with the government’s method of estimation, based on labor, material, plant, overheads, and profit. At times, unforeseen circumstances led to losses, but the experience and reputation gained enabled companies to secure larger projects, recover losses, and grow sustainably.

The scenario changed with the availability of easy financing and the government’s large infrastructure push. Many new players entered the construction mainstream, often adopting agile and inorganic business models. With limited experienced professionals now spread across numerous ventures such as joint ventures, SPVs, and consortiums, aggressive bidding became widespread across all verticals. As a result, while new entrants secured big contracts, many established companies failed to survive because the project ticket sizes with inorganic competitors were large and opportunities for recovery were limited.

Limitations in Evaluation

In the L1 bidding system, the criteria are focused primarily on price after the RFP or RFQ stage. While technical capability evaluations are conducted, factors such as prior experience, availability of plant and machinery, technical staffing, business scale, technological advancement, quality management systems, and safety systems often take a back seat at the final awarding stage. Consequently, aggressive pricing strategies push companies to cut costs by lowering overheads and compromising on safety and quality standards. This has, in many cases, led to infrastructure failures and even loss of lives.

To address this, it is suggested that evaluation models should assign weightage to both price and other critical parameters. A balanced approach, such as giving 60% weightage to price and 40% to other parameters, would ensure both cost-effectiveness and long-term value.

Understanding the True Cost

The true cost of projects is usually worked out by DPR consultants. Beyond the core elements of labor, materials, equipment, and overheads, several additional factors must be considered: increment in wages, inflation, increase in staff cost, safety provisions, design management, cost of capital, maintenance during the defect liability period, impact of monsoons, and import duties for equipment. Factoring in these parameters helps arrive at a more realistic cost and reduces the chances of under-quoting.

Contracts within a 5% range of the estimated cost should be preferred, and commercial bids should be finalized using a weightage-based model rather than the lowest price alone. Even if bidders meet the prequalification and technical criteria, commercial evaluation should include these additional parameters to avoid compromises in structural integrity, project delays, and loss of value.

Challenges in DPRs and Suggested Reforms

DPRs are often prepared on predefined templates and fail to adequately cover risk factors associated with infrastructure projects. Issues such as delays in securing ROW, fund availability, environmental clearances, volatile international pricing, specialized execution methods, material scarcity, inadequate survey data, and land title clearances frequently transfer risks to the executing agency. These gaps result in delays, inflation in project costs, and disputes that end up in lengthy arbitration processes. Contractors often suffer severe setbacks, leading to financial stress, project delays, and even the exit of promising infrastructure players from the industry.

Specific reforms can address these challenges. All DPR consultant staff should be approved by the project owner, and land titles should be thoroughly vetted to establish ROW timelines. DPRs should adopt the latest methodologies, technologies, and equipment trends, with execution methods clearly specified in the special contract conditions.

Bidding should only commence post-environmental clearances. Surveys, land, geotechnical, bathymetric, must be comprehensive, with increased data points to minimize unforeseen circumstances. Import tariffs should be factored in for equipment-based projects. Efforts must be made to reduce labor-intensive methods by adopting mechanized solutions like precast or segmental construction. Risk registers should be made mandatory in DPR submissions, and issues such as PAP or traffic diversions must be thoroughly planned with local bodies to ensure smooth implementation.