Industry experts have hailed the government's move to dismantle the L1 or least cost selection method as the only bidding format for the selection of bidders to execute projects.
The department of expenditure’s public procurement division on October 29 issued guidelines allowing all non-standard works and non-consultancy services to be bid out under the quality-cum-cost-based Selection (QCBS) method.
The government has now broadened the scope of QCBS to go beyond consultancies and allow it for all public works that are defined as PoQ or projects of quality.
As per the revised guidelines, the L1 method will no longer be the only tendering format for selecting bidders. So far, L1 was used by ministries, public agencies and public sector undertakings (PSUs) to pick companies to perform routine or standard works and non-consultancy services like audit and designing plans for non-complex works.
Vinayak Chatterjee, infrastructure sector expert and chairman of the Confederation of Indian Industry’s National Council on Infrastructure, said, “It's a very big reform because for decades, India has been following the L1 process which does not give good results and Indian industry and many others have been recommending that quality or past performance and ability should also be counted in selecting bidders.”
“There will be no difference between small, medium or large players and it will benefit everybody who is a participant in any kind of government procurement and will improve the quality of infrastructure development,” he added.
Chatterjee also said that the L1 system did not give weightage to the track record and competencies of the bidders which will now be recognized to the extent of 30 percent of the bid parameters.
Vasanth Rajasekaran, partner, Phoenix Legal, said, “The move is a game changer for the startup ecosystem and MSMEs (micro, small and medium enterprises). Introduction of QCBS would balance out the interests of big conglomerates and smaller niche players by creating a level playing field. It is a win-win for everyone as participation of more enterprises in the procurement process would bring out the best in business for public procurement.”
Anjan Dasgupta, partner, DSK Legal, said that it is a welcome departure from the L1 culture. “This move of the government will most likely increase the cost of the product/service being procured by the government instrumentality. However, the race to the bottom that we often see in biddings in India will be to a large extent checked with this change,” noted Dasgupta.
He added that QCBS is helpful in terms of healthy competition and time-bound quality procurement and observed that the move will also help foreign companies bidding in India, especially European ones that miss out due aggressive bidding by some Chinese and Indian companies.
Speaking to Moneycontrol, Ajay Pradhan, president, Consulting Engineers Association of India (CEAI), said, “This is a game-changer move by the government. It will definitely improve the quality of infrastructure projects. While there were processes on quality and cost processes in the L1 model, it gave low priority to quality over cost.”
“Even our future investment in infrastructure was suffering because priority was given to cost and naturally the best technological proposal had a high cost,” he added.
CEAI, a consulting engineers’ lobby group, had been urging the prime minister to revisit the age-old existing tendering system based on the least cost selection method. It had said that for complex projects like expressways, tunnels, power plants and the like which require specialised state-of-art-technology, tenders should be awarded on a QCBS basis.
Akshay Nagpal, partner, Saraf and Partners, said, “With efficient execution of projects being one of the important factors for the government along with transparency and fairness of the system, only L1 method based on fulfilment of basic eligibility criterion would fall short of achieving this goal.”
He added that now more competent bidders would be incentivised to bid for contracts especially in fields requiring complex technological and project management skills.
Provision on delayed payments to contractors
Another significant reform in the October 29 guidelines by the government deals with delay in payments to contractors.
As per the guidelines, 75 percent of the running bill should be released in 10 working days and the balance 25 percent within 28 working days.
A delay in payment of bills by more than 30 working days after the submission of bills by the contractor would attract interest payment.
“The move will benefit contractors and consultants in managing the cash flows. Most of the contractors in India have a negative cash flow because of delayed payments which go up to several months. This will help improve the cash flows of the contractor and help them in the timely delivery of projects,” said Ajay Pradhan of CEAI.
Dasgupta of DSK Legal noted that this will be a boon for MSMEs and smaller players who have tight cash flows as the larger players are able to absorb longer credit periods.
Shaneen Parikh, partner and head, international arbitration at law firm Cyril Amarchand Mangaldas, said, “This measure will improve liquidity in the construction sector by ensuring that contractors are not cash-strapped through lengthy challenges to awards by PSUs. By mandating the provision of bank guarantees against receipt of 75 percent of the award amount, the government undertaking is secured in case of a successful outcome.”
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
