India’s public procurement is synonymous with the least cost system, also known as L1 system. When the General Financial Rules (2017) introduced additional procurement methodologies such as Quality and Cost Based Selection (QCBS), which was initially in consulting only, it was sounding out alternative thought processes on procurements.
For instance, the Ministry of Defence (MoD) came out with a revamped Defence Acquisition Procedure (DAP) in 2020 allowing the QCBS. Now, the QCBS stands endorsed for non-consulting sectors as well through a recent Ministry of Finance (MoF) guideline. Many analysts, unfortunately, interpret these developments as scapegoating the L1 culture towards a new QCBS economics.
When the QCBS entered the procurement vocabulary in 2017, it was partially in response to misperceptions being proliferated against the L1 system. Time-tested L1 procurements were being pooh-pooed by a section of procurement managers as prohibitive of quality items that were being sacrificed because of the L1 process. ‘Pushpin is as good as poetry’, they proclaimed!
However, there are several reasons to believe that such propositions are at best ‘false narratives’.
First, the tendering methodology through the L1 system, or the QCBS, or the fixed system, is just one aspect of the complex procurement system. Issues such as the vibrancy and maturity of commodity market, diffusion and innovation of technology, patenting issues, etc. are some representative issues that equally matter.
Second, the L1 system serves well in an environment where there is no specialised procurement agency. In fact, no organised Group A service in the Government of India can lay claim to domain specialisation in procurement. Simplicity of procedures identified in the GFR and other procurement manuals issued by the MoF facilitate procurements. Other ministries and departments are encouraged to publish their own specialised manuals to address specific requirements.
Third, the L1 system or the QCBS are no solution to two ubiquitous problems in the procurement field: temporal delays, and consequential cost escalation. There would be hardly any capital acquisition project, anywhere in the world, which is free from the two vices, unless controlled by regimented and disciplined project monitoring.
The world of procurement is full of imperfections, distortions, and disinformation. Concurrently, most procurement managers in the public sector lack corporate qualifications for swift financial decision-making. Very few managers invest in knowledge-building on procurement-related issues. Thus, there is an inbuilt atmospherics of bounded rationality.
Correct procurement analysis often suffers. Additionally, short tenures, lack of prior experience, and involvement of too many stakeholders hamper courageous and timely decisions. These problems would remain in situ even if the L1 system is condemned in favour of the QCBS or another system. In most cases where the L1 is blamed as the villain, quantitative requirements (QRs) are framed in a casual and ignorant manner. In sectors characterised by swift technological innovation and upgradation such as defence acquisition, no amount of either the L1 or the QCBS can do justice to recent trends in weapons acquisition, since the service-related QRs would always lag behind!
If the L1 system has survived thus far, it was because of its simplicity, and wider acceptance from the Central Vigilance Commission and other agencies. The shift towards the QCBS, therefore, should be seen more as a public policy response towards additional, and flexible sources of procurements rather than a mutiny against the L1 system.
Issues that were raised as fallacies of the L1 system would also crop up against the QCBS. For example, how do we ensure cost affordability in the new system? What is the guarantee of getting best technology? How do we handle dynamic sectors such as defence, where technology change is very fast, and there is heavy cost to every generation of technological upgrade? How do we move costing technique ahead to suit the QCBS? Finally, how do we handle proportionate distribution of quality and costing factors? Detail guidelines notwithstanding, the QCBS may require more labour by procurement managers.
The solace to above procurement dilemma lies in the fact that all procurement models have advantages, and disadvantages. The QCBS will provide more choice and flexibility for procurement managers. At a time when public policy emphasis is to augment the capex model of procurement, the QCBS option is a deft move towards a robust and transparent procurement regime with utility maximisation and ‘quality’ asset creation.
Diane Coyle, British public policy expert, famously said that all contracts suffer from imperfect information (The Soulful Science: What Economists Really Do and Why It Matters, Princeton University Press, 2010, p. 270). Therefore, be it the L1 system or the QCBS, we should endeavour towards high quality procurement managers capable of leading procurement decisions, rather than cribbing about environmental hazards of different procurement models. Probably, that is the way to make the best of all procurement models.
Bhartendu Kumar Singh is in the Indian Defence Accounts Service.
Views are personal and do not represent the stand of this publication.
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