Bibhudutta Satpathy from Markolines shares views on L1 Bidding System

A more balanced approach could involve evaluating both L1 and H1 bids, and using the estimated project cost as the benchmark, rather than relying solely on the lowest quote.

Bibhudutta Satpathy
Senior VP- EPC & MMR
Markolines

Impact on Project Quality and Costs

The L1 procurement approach, while simple and transparent, carries both advantages and disadvantages that significantly affect project quality, delivery timelines, and sustainability. Originally used in government contracting, this methodology has gradually expanded into private sector procurement as well. While selecting the lowest financial bid which may reduce initial costs, it often leads to compromises in material quality, technology, and skilled labor. Contractors under pressure to undercut competitors may struggle to balance cost, resources, and execution risks. Unrealistically low bids can create cash flow challenges during execution, resulting in delays, increased maintenance, and higher overall lifecycle costs.

Long-Term Risks and Hidden Costs

Awarding projects solely on the basis of the lowest bid can have serious long-term consequences. Cash flow shortages may slow progress and delay project completion. Contractors may seek variations, claims, or re-negotiations to recover losses, further inflating costs. Poor construction quality can result in frequent maintenance, higher energy consumption, and shorter asset lifespan, increasing the total cost of ownership. In the worst cases, safety compromises can lead to accidents, legal disputes, or even loss of life, highlighting the critical need to prioritize quality and safety alongside cost.

Ensuring Transparency and Value of Money

To improve the bidding system, procurement processes should incorporate clear evaluation frameworks and pre-qualification criteria. This includes screening bidders for financial health, technical capacity, past performance, and adherence to environmental, social, and governance (ESG) standards. E-tendering systems with open access to bidding details, scoring, and audit trails can enhance transparency. Policies should also consider long-term costs, including operation, maintenance, and end-of-life expenses, and tie payments to project outcomes such as service levels and durability.

A more balanced approach could involve evaluating both L1 and H1 bids, using the estimated project cost as the benchmark rather than relying solely on the lowest quote. Bids significantly below or above estimated costs should be scrutinized carefully for adequacy in terms of Man, Material, and Machinery (3M) to ensure sustainable, high-quality project execution. Adopting a Quality and Cost-Based Selection framework, with minimum eligibility thresholds, can help retain only viable contractors while maintaining transparency, fairness, and value-for-money in infrastructure procurement.