Dr. H.L. Chawla from Arbitration Engineer Consultant shares views on L1 Bidding System

A more reliable approach is to reject both the lowest and highest bids and award the contract to the bidder closest to the mean price, this ensures quality work, reduces disputes, and minimizes risks.

Dr. H.L. Chawla
Arbitration Engineer Consultant
Former World Bank Consultant)

The L1 Bidding: Undercutting Over Expertise

In India, as in many other countries, most contracts are advertised for tenders and awarded on the L1 system “Lowest One.” This system restricts the employer to select the bidder who has quoted the lowest price, except in certain cases where specific bidders are given preference.

While this model appears cost-efficient, it has created a culture where undercutting often wins over expertise. In some cases, bidders quote 25–30% below the actual execution cost to secure tenders. The assumption underlying the system is that all bidders have the same capacity to deliver projects to the required standards. But, in reality, this is not always the case.

Although credentials are screened before bidding, lapses occur. Historical performance and expertise are not always thoroughly verified, allowing unqualified bidders to participate. This increases the risk of unsuccessful execution and, at times, encourages unfair practices.

Quality and Safety Concerns

The L1 system’s focus on cost minimization often results in the use of substandard materials, deployment of inadequate or outdated machinery, and the employment of untrained or poorly trained workers. The consequences are visible across the country in the form of compromised quality of finished projects, questionable construction practices, and outcomes that fail to meet expected standards. Safety and environmental concerns, including carbon emissions, are often neglected, while worker welfare also suffers due to inadequate lodging, sanitation, and healthcare facilities.

Delays, Disputes, and Claims

To protect their margins, many contractors cut corners. Others adopt aggressive contract management strategies, documenting every possible lapse on the employer’s part to generate claims. They have therefore a hawk’s eye on any weakness in the system, documentation or correspondence, on the employer’s part.

Here, contractors often have an advantage. Unlike employers, whose project officers are frequently transferred, contractors maintain continuity of staff. By the time a project ends, the original employer-side officers may no longer be in place, leaving gaps in institutional memory and documentation. This weakens the employer’s ability to counter claims. As a result, disputes, arbitration, delays, and even incomplete projects are common. In my view, if you decide to award work to the lowest bidder, you must be prepared to accept the cheapest, and often delayed, outcome.

A Practical Alternative

A more reliable system is to reject both the lowest and highest bids, calculate the mean price of the remaining bids, and then award the contract to the bidder whose price is closest to this mean. This approach ensures quality work, reduces disputes, and minimizes health, safety, and environmental risks. I have applied this method successfully in the private sector in India and abroad. While public sector employers may raise objections, it remains a viable model worth testing.

Some countries, such as China, ensure project continuity by retaining key staff not only until project completion but also until all issues between the employer and contractor are resolved. This strengthens project delivery and accountability.

The current system of awarding work based solely on price justification, supported by certificates that the “lowest bidder’s rates are justified,” is not foolproof. For India to balance cost-efficiency with quality and timely delivery, reforms to the L1 model are essential.