To the uninitiated, L1 and QCBS could sound like the code names of robots or gaming programmes. In India, L1 or shorthand for the lowest price bidder, however, is synonymous with public or government-awarded contracts of most kinds.
Over the years, L1 had emerged as the default method for evaluating government tenders and contracts. For achieving cost efficiencies and financial transparency, L1 or the least cost method, can be useful.
But there is a catch. The L1 method is only a quantitative metric. How would you evaluate the credentials of a firm based purely on a financial metric? This is particularly relevant in projects that involve state-of-the-art technology infusion and design.
For project and bid evaluators, however, the two non-negotiables are, and should always be, probity and fairness. This, though, resulted in a single point bid appraisal system. Those with the lowest bid would generally walk away with the contract.
The degree of technical credentials did not matter much, as bid assessors preferred to stay on the side of caution to avoid litigation and allegations of favouritism, bias and preferential treatment.
The Economic Survey 2020 made a pertinent point arguing in favour of reforming the L1 system for superior project execution and quality. “No decision maker wants to exercise discretion for the fear of future questioning. This criteria may appear simple and quantifiable, however, in a complex world where it may not be possible to define everything in the pre-procurement process, it is advisable to leave some discretion in the hands of administrators along with maintaining enough transparency and active supervision,” it said in a chapter on Process Reforms.
While the L1 method may have protected government bid evaluators from potential accusations of partiality and prejudice, expertise of bidders had begun to assume a secondary role, with attendant consequences on quality of project execution.
The Quality Council of India (QCI) conducted a study on the highway development sector and found that the vendors who were all awarded contracts on the basis of competitive bidding vary widely in terms of quality of work and performance, which was not covered under the existing bid evaluation system.
The report suggested incorporating Performance Rating in Competitive Bidding to provide a quality premium to superior bidders rather than simply awarding the contract to L1 bidder and gave a formula to calculate the total score as the summation of financial score and performance rating score.
It is in this context that on October 29, the Union Finance Ministry released guidelines for reforms in public procurement and project management, which seek to incorporate “innovative rules for faster, efficient and transparent execution of projects".
The instructions provide that where appropriate, “quality parameters can be given weightage during evaluation of the proposal in a transparent and fair manner". Such a ‘Quality cum Cost Based Selection’ (QCBS) method has been introduced as “an alternative to traditional L1 system", under which contracts are awarded to the lowest bidder.
QCBS is suitable for transport infrastructure projects and contracts for rolling stock in urban transport PPPs (such as BRTS), where it is desirable that the bidders possess a certain amount of technical skills and previous construction or operational experience. For the roads and urban transport sectors the project team should by default consider the QCBS approach for selection.
The Least Cost Method (LCM) or the L1 method is suitable specifically in situations where the requirement is basic or of a commodity nature or is highly standardised, with limited requisite technical input and nothing to differentiate the quality of competing developers. LCM might be used for basic services like cleaning and maintenance.
The QCBS method is intended to infuse expertise by according weightage to knowhow in project evaluation. It would imply that a bidder can still fancy winning a project even if it is not the lowest cost option for those granting the project.
This is a good beginning and looks elegant in theory. A lot, however, will depend on the design of the QCBS method for specific projects and the way the weights are assigned and appraised. By definition, the weightage on technical expertise will have an element of subjective evaluation. Eventually, transparency in these points and weights-based assessment processes will determine the success or otherwise of the QCBS system.
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