Pradeep Garg from CPWD, New Delhi shares views on L1 Bidding System

To counter abnormal underquoting in L1 bid system, alternatives like 2-bid system, additional performance guarantee or mechanishm to award bid closer to market averages need to be explored to ensure both transparency and quality.

Pradeep Garg
Chief Engineer
CPWD, New Delhi

Balancing Cost and Quality in Bidding

The success of any contract depends on two key factors: minimizing input costs and maximizing output quality. Ideally, there should be a balance between the two to achieve a win–win result. The L1 bidding system works well when it delivers the quality expected by the client or user. However, over the years it has been observed that bidders often quote abnormally low rates to win contracts amidst stiff competition. These bids, sometimes below fair market prices, make it difficult to deliver the required quality and specifications.

As a result, contractors may compromise on materials, workmanship, or execution standards, leading to poor-quality outcomes. Such projects not only underperform in functionality but also fail to achieve their intended service life. Frequent repairs or premature replacements strain natural resources and create long-term sustainability challenges. While legal provisions allow penal action against contractors who default, but by then both the work and the user have already suffered. Preventive measures, therefore, are more effective than corrective ones.

Alternatives and Corrective Measures

One way to address the shortcomings of L1 bidding is through a two-bid system, where contractors are first evaluated on technical merit and then the lowest bid is selected among those who qualify. While this tilts the balance toward quality, it is not foolproof, as technically qualified bidders may still quote abnormally low rates.

To deter such practices, some organizations, including state PWDs, require additional performance guarantees from bidders quoting below fair market prices. If quality is compromised, the extra guarantee is forfeited along with other security deposits, discouraging reckless underquoting.

Other alternatives, though rarely practiced in India, include awarding contracts to the L2 bidder or awarding on the basis of an average of L1 and L2 bids. These approaches, used in some countries and organizations, encourage bidders to quote closer to fair market rates since the final outcome is less predictable. Such methods, along with stricter policies, could be considered at the government level and may also influence private sector practices.

In the private sector, some organizations prefer the nomination system, negotiating rates close to the fair market price to ensure quality. However, this method is seldom adopted in government projects to avoid the risk of corruption and to maintain transparency and fairness in participation.