Col Rajeev Sood (Retd) Secretary General - HOAI & Former Executive Director - NHIDCL shares views on L1 Bidding System

India must move beyond a one-size-fits-all L1 approach, which should be reserved for simple, standardized projects, while complex projects should adopt HAM or QCBS to prioritize long-term value.

Col Rajeev Sood (Retd)
Secretary General - HOAI
& Former Executive Director - NHIDCL

The Double-Edged Sword of the L1 System

The L1 bidding system has driven transparency, cost efficiency, and competition in India’s road sector, helping expand the national highway network by 60% since 2014, with construction touching 33.83 km per day in FY24.

However, over-reliance on this system has created a "low-cost syndrome," where the emphasis on the lowest price compromises long-term quality, safety, and sustainability. To secure bids, contractors often submit "abnormally low bids" (ALBs), forcing them to cut corners on materials, labour, and safety protocols. This has been tragically illustrated by incidents such as the Vivekanand Flyover collapse in Kolkata and the Morbi Bridge collapse in Gujarat, where lowest bids contributed to catastrophic failures.

While upfront savings appear attractive, they often result in higher life-cycle costs due to frequent repairs and premature overhauls. The system also discourages innovation by favoring cheaper, traditional methods over advanced technologies. Hyper-competitive bidding leaves projects financially strained, pushing contractors to depend on Change of Scope (COS) provisions, while still bearing heavy upfront costs for bid security and site investigations.

MoRTH’s Policy Reforms

In response to challenges posed by the L1 system, the Ministry of Road Transport and Highways (MoRTH) has strengthened bidding criteria by tightening financial and technical eligibility for HAM and EPC projects. For HAM projects, the minimum financial capacity has risen to 20% of the estimated project cost from 15%. For EPC projects, minimum net worth has doubled to 10%, and average annual turnover has increased to 20%.

To curb abnormally low bids, MoRTH has introduced an Additional Performance Security (APS) regime. APS is triggered for bids just 10% below the estimated cost, with no cap on the amount, deterring predatory pricing and ensuring financial stability.

For consultancy contracts on DPRs, MoRTH has shifted from L1 to T1, awarding contracts based on the highest technical score with a fixed fee. This strategic move prioritizes quality over upfront cost savings, aiming to prevent long-term delays and project issues.

Emphasizing Value Over Lowest Cost

The L1 system is not the only procurement model. Alternatives like the EPC model enable faster project delivery, while the HAM model shares risk and funding between the government and private developer, making projects more viable. The QCBS model, now used for DPRs, prioritizes technical expertise for complex projects. For asset monetization, Toll Operate and Transfer (TOT) contracts are awarded to the highest bidder (H1).

To achieve its ambitious infrastructure goals, India must move beyond a one-size-fits-all L1 approach. L1 should be reserved for simple, standardized projects, while complex projects adopt models like HAM or QCBS to prioritize long-term value. A shift from focusing on initial costs to life-cycle costing is essential. By considering long-term maintenance and operational expenses, the government can select bids that deliver the best value over the project’s lifetime.