New Delhi: Industry leaders, especially from the defence segment, say that the L1 tendering system, also called Least Cost Selection Method, under which the lowest bidder is given a contract, has become the bane of innovation and the government should replace it with the T1 system. This implies that the manufacturer of a product with the best technology should be given the contract.

The Sunday Guardian spoke to manufacturers of defence equipment who stated that despite having the best of technology and products, they were not getting government contracts because their products did not qualify under the L1 system.

“We produce some of the best border fencing and infiltration detecting systems, but the government does not use them because these are not cheap. If your product is using the best technology, how can it be cheap? If you want the cheapest product, obviously, it will not be the best. Policymakers need to realise this. Some of the fencing that is being currently used at the borders is cheap, but they need to be replaced very frequently as their quality is inferior. In the end the government ends up spending more money in frequently buying inferior goods rather than spending on a comparatively expensive, but maybe a 100 times better product,” a senior executive of a company engaged in manufacturing border fencing products said.

According to industry experts, L1 tendering system is proving to be the bane of research and development. “Very few Indian companies invest in research and development as they have to keep the prices of their products low. If keeping the price of the product cheap is the objective, obviously you will not focus on how to improve your products as that requires investing on sharp minds and better facilities,” added a CEO of a company engaged in manufacturing communication systems related to defence.

The recently held two-day seminar on border management, which was organised by FICCI, experts, industry players and government officials, also focused on the L1 tendering system and how it was not giving the required results and discouraging companies with superior products. “Following the principle of sasta-sundar-tikau (cheap and durable) is not helping anyone,” as a CEO of a defence equipment manufacturing quipped.

Earlier in October, the Chief Vigilance Commission (CVC), while preparing a concept note, which was shared with the government, had stated that the L1 system was holding back India’s development and the time had come to replace it.

According to official sources, the CVC stated that the L1 system should be limited to routine work while it could not be used where the procurement was related to superior systems that were procured once a while.

The concept note said that the bidder with the best technology rarely got the contract as the price offered by it was higher since his products were far superior.

In the note, the CVC has recommended alternative tendering policies such as Quality-cum-Cost Based Selection (QCBS), Quality-Based Selection, Quality-cum-Least Cost Based Selection (QLCBS), Procurement Based on Life Cycle Cost (LCC) and Swiss Challenge (SC) for future procurement.

In the QCBS, more weight, 70:30, is given to the technical credentials of a bidder.

The Quality-Based Method simply focuses on quality and then the price is mutually decided.

Under QLCSB, the bidder is shortlisted on quality and then the price bids of top three or more bidders are opened and the lowest bidder gets the contract.

Under the Life Cycle Cost system, a superior quality product, which requires less maintenance and has higher productivity, is given priority.

Under Swiss Challenge, the private sector proposal initiator submits a suo motu proposal to the government agency for a project. After studying the proposal, the government puts it up for competitive bidding for counter-proposals. If the initiator fails to match the counter-proposal, then it goes to the latter.