Lowest cost or “L1” is no longer the only way to select bidders – why Modi revised government policy


The Ministry of Finance at North Block in New Delhi | Photo by ANI

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New Delhi: Just before Diwali week, Narendra Modi’s government announced major reforms to its public procurement policy, which went largely unnoticed.

With the aim of ensuring quality work and controlling time and cost overruns, the Ministry of Finance issued on October 29 general instructions on procurement and project management, which broadened the scope of selection of bidders for the execution of government projects, and the procurement of goods and services in government departments and offices.

According to the revised guidelines, L1 or least cost selection method, will no longer be the only tender format for the selection of bidders for the execution of projects. L1 has so far been the preferred method used by ministries, government agencies and public sector enterprises (PSUs) to select the lowest priced standard or routine work/ non-consultancy services, such as auditing and technical design of non-complex structures.

Guidelines issued by the Public Procurement Division of the Ministry of Expenditure have now allowed the selection of bidders for works and non-consultancy services through alternative procurement methods such as quality-based selection and costs (QCBS).

Until now, under the General financial rules, 2017, which government agencies and ministries should follow when dealing with public finance issues, the QCBS has only been used for procurement where the quality of advisory services is a major concern. Two other additional procurement methods – L1 and single source selection – were also recommended in the 2017 GFR.

The revised guidelines suggested a fourth method – selection based on a fixed budget – for the selection / evaluation of consultant proposals. According to this method, the cost of consulting services should be specified as a fixed budget in the tender document itself.

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How is QCBS different from L1?

In the L1 system, a bidder is selected only on the basis of the lowest cost incurred to complete the work. There is no weighting for the technical score in the final evaluation and the technically qualified proposal compliant with the lowest evaluated cost is selected.

Unlike L1, the CSBQ evaluates a bidder based on a combination of technical and quality scores. However, the maximum weight for non-financial parameters should not exceed 30 percent.

The revised guidelines allow procurement agencies to use the QCBS when procurement has been “declared to be a quality-driven procedure by the competent authority” and when the estimated value of the procurement does not exceed 10 crore de rupees.

QCBS is the preferred mode for international calls for tenders. According to a Ministry of Finance toolkit prepared to improve public-private partnership decision-making, the QCBS is used to select bidders for transport infrastructure projects, roads, etc. when the tenderer has both technical skills and is competent.

Why has the public procurement policy been revised?

The need to revise the public procurement strategy arose after various agencies, including the Central Vigilance Commission (CVC), the Comptroller and Auditor General (CAG) and NITI Aayog, signaled concerns that the L1 system is not the most efficient when it comes to selecting bidders. for products or services, in particular for the realization of infrastructure projects, which require a high level of technical expertise.

The agencies considered that the L1 system could lead to compromised quality of work, delays and cost overruns, since the bidder is selected on the basis of the lowest proposed cost.

Economic Survey 2020-21 cites a HVAC Concept Note entitled ‘Alternative procurement strategy for the award of works and goods contracts’, which states that’ L1 may still be valid for the procurement of routine works, goods and services other than consultancy, but not for high impact and technologically complex markets ”.

The Economic Survey, in the chapter “Process Reforms: Enabling Uncertain Decision Making”, indicates that the L1 system persists due to the problem of regulatory failure.

“No decision-maker wants to exercise his or her discretion for fear of future questioning. This criterion may seem simple and quantifiable, however, in a complex world where it is not always possible to define everything in the pre-purchase process, it is advisable to leave some discretion to the administrators while maintaining sufficient transparency and active supervision. ”, States the Economic Survey.

While agencies have reiterated that L1 is not the most effective way, some advise using caution when using CSBQ, on the grounds that it could only result in suppliers cut off to tender or cartel between them.

(Edited by Neha Mahajan)

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