Jyoti Kulkarni from PMGSY Pune shares views on L1 Bidding System

The problem lies not with the L1 bidding system itself but with the human tendency to misuse it by misinterpreting criteria, misrepresenting facts, or exploiting contract provisions.

Jyoti Kulkarni
CE & SQC
PMGSY Pune

Colonial Legacy and Evolution of L1 Bidding

The concept of awarding public works to the lowest bidder traces back to British colonial rule in India in the 19th century. Public Works Department (PWD) manuals under the British emphasized competitive bidding, where the lowest responsive bidder was typically selected. After Independence, India continued this framework, keeping L1 as the standard approach in government organizations.

The General Financial Rules (GFRs) formalized the practice, with GFR 2005 and GFR 2017 explicitly mentioning the award of works or contracts to the “lowest evaluated responsive bidder.” Procurement rules under the Central Vigilance Commission (CVC), CPWD Works Manual, and World Bank-funded projects also emphasize L1 as the default, unless justified otherwise. The L1 bidding system is deeply rooted in India.

Strengths and Weaknesses of the System

Prima facie, the L1 bidding system is a simple and effective method of procurement, offering advantages of fairness, transparency, quick decision-making, and lowest cost to the client. Over time, however, stakeholders have found loopholes that compromise its efficiency. Issues such as poor quality, delays, inflated costs through claims and variations, collusive practices, increased litigation, compromised safety and environmental standards, and substandard infrastructure have become prevalent.

The problem lies not with the system itself but with the human tendency to misuse it by misinterpreting criteria, misrepresenting facts, or exploiting contract provisions. In some cases, infrastructure has deteriorated even before the end of the defect liability period. Therefore, preserving the benefits of L1 while addressing its weaknesses requires targeted policy and procedural reforms.

The Way Forward: Key Reforms

Strengthening prequalification and technical criteria is essential, including stricter eligibility filters for financial capacity, past performance, manpower, and equipment, along with blacklisting of bidders with poor records. Graded technical scoring before opening financial bids and deterrent action against officials who misinterpret rules are also necessary.

Abnormally low bids (ALBs) must be checked through mandatory reviews of significantly underpriced bids, requiring justification of pricing structures and rejecting unsustainable offers. Additional performance security, inspections, and even permanent blacklisting should be imposed where required.

A lifecycle costing and value-for-money approach should be encouraged, evaluating not just upfront costs but also operation, maintenance, and durability. The PMGSY scheme is already applying this principle. At the same time, contract management capacity must be strengthened with trained engineers, digital monitoring tools, strict inspections, third-party audits, and fast-track dispute resolution.

Incentives and penalties should play a larger role, linking payments to quality and milestones, penalizing poor performance with blacklisting and forfeiture of guarantees, and rewarding early completion or superior quality with bonus payments. Transparency and digital oversight can further enhance the process through e-procurement platforms, publishing contractor performance records, and mandating independent technical reviews for high-value projects.

The L1 system can remain effective for routine, standardized works if supported by such reforms. For complex and high-value projects, however, a gradual shift toward Quality-cum-Cost Based Selection (QCBS) and performance-based models is essential to ensure durability, efficiency, and public trust, while recognizing that misuse through misinterpretation or misrepresentation can affect these systems as well.