india

Updated: Oct 14, 2019 04:15 IST

The L1 tendering system, also called Least Cost Selection Method under which the lowest bidder is given a contract, has been prevalent in the government departments, ministries, public sector undertakings (PSUs) for over 70 years.

But the Chief Vigilance Commission (CVC) now believes that the L1 system may not be the most appropriate and capable method of delivering the results commensurate with the high growth trajectory of development envisioned for the country and it needs to be done away with, according to people aware of the development.

The apex vigilance institution has prepared a concept note or a proposal in this regard, which would be put before the government very soon. HT has seen a copy of the concept note, which says that the conventional L1 method was not suited in high impact infrastructure projects or for setting up complex processing unit or purchasing a state of art machine/equipment.

The CVC says that “it needs to be revisited” and “an all-inclusive public procurement strategy is required” in sync with a rapidly changing world, which calls for complex technological solutions at the best prices for the larger public good.

The CVC has been exploring alternative strategies. It has over the past three-four months held discussions with major players like Oil and Natural Gas Corporation (ONGC). It has also been studying the guidelines of the World Bank and Asian Development Bank on procurement as well as Tamil Nadu, Rajasthan, and Karnataka’s public procurement acts, the people said.

After discussions, it has concluded that while the L1 system may still be good for procurement of routine works and non-consulting services, but for high impact and technology complex procurements, this method may not be able to cater to today’s need for innovation, quality, speed, functionality, efficiency.

Citing a flaw in L1, CVC note says that a bidder with better credentials and higher capability tends to quote a higher price to meet the economics for the superior product, services and eventually loses out in price competition.

The CVC has recommended alternative strategies like Quality-cum-Cost Based Selection (QCBS), Quality-Based Selection, Quality-cum-Least Cost Based Selection, Procurement Based on Life Cycle Cost and Swiss Challenge for future procurement.

In the QCBS, according to CVC, higher weightage--70:30 or 80:20--could be given to the technical credentials of a bidder, which may include experience, manufacturing capability, availability of state of the art machinery, systems, domain expertise, design etc vis-a-via the price offer. “This method is capable of selection of vendors of superior credentials, which in turn will be capable of delivering higher quality output,” the note says.

The Quality-Based Method simply focuses on quality and price can be mutually agreed upon. About third suggestion, QLCSB, the CVC says best bidders could be shortlisted based on quality and then price bids of top three or more could be opened and lowest could be offered the work.

About procurement based on Life Cycle Cost, CVC says recurring costs on maintenance and operation may, at times, outweigh the initial cost considerations. In such cases, a superior quality infrastructure asset with lesser maintenance, higher productivity, higher uptime backed by financial instruments like bank guarantees should be considered.

About the Swiss Challenge, CVC says in this method, the private sector proposal initiator may submit a suo motu proposal to the government agency for a project. After studying the proposal, the government may put up competitive bidding for counter-proposals. If the initiator fails to match the counter-proposal, then it may go to the latter.

Former ONGC chairman R S Sharma called the note a welcome move. “L1 does not work especially where technical expertise is required. It is as if you have to go to the doctor, you will choose the best doctor, not the one which charges the least. L1 is suitable only in orders and contracts where there is bulk item purchase,” he said.

“But the most important thing [in this] is that transparency should not be compromised by somebody using discretion. When PSUs, government departments or ministries use discretion, then you have corruption. Evaluation criteria should be predetermined. This brings more objectivity,” Sharma said.