Government is considering a proposal to permit single-bid road projects to go through. Earlier, the railways had thought of seeking Central
Vigilance Commission (CVC) protection before awarding diesel and electric engine manufacturing projects to sole bidders, but eventually decided to do it in-house.
Clearly, these instances indicate the process of awarding projects seems to have become more important than getting the project started quickly. The basic idea behind competitive bidding for any project is to give an opportunity to everyone and, through a market mechanism, obtain the least cost solution.
Clearly, to the extent there is an open bidding the first purpose of giving an opportunity to everyone has been served. If only one bidder chooses to participate in such a bidding, then so be it. The second issue is more important. In a single-bidder situation, the lack of competition would mean the quoted price may not be the best from the perspective of the one inviting the bids or awarding the project.
In such an event, there are two choices, both entailing some costs. One, the entire process can be aborted and bids called again. There is direct calculable costs of this action, escalation in project cost through delay and the loss of opportunity; there is a also the lesser cost of the bid process itself. As opposed to this, if the project is awarded to the sole bidder, the only cost is the possibility of a better price discovery, if there were more bidders. However, there is no way of knowing if in a multiple bid situation the price discovered would have been lower.
Therefore, it makes sense to award a project even if there is only a single bidder. However, the government must make an internal assessment of costs or tariff, depending on the nature of the project, and set a sort of reserve price. If the single bid betters the reserve price then the projects should be awarded.
In the current environment when investment sentiment is extremely poor, the priority should be to facilitate projects and not get too caught up in procedures. The bid documents should provide for the possibility of projects going to a single bidder and the CVC would do well to ensure that such awards do not become controversial.
Courtesy: Economic Times
Clearly, these instances indicate the process of awarding projects seems to have become more important than getting the project started quickly. The basic idea behind competitive bidding for any project is to give an opportunity to everyone and, through a market mechanism, obtain the least cost solution.
Clearly, to the extent there is an open bidding the first purpose of giving an opportunity to everyone has been served. If only one bidder chooses to participate in such a bidding, then so be it. The second issue is more important. In a single-bidder situation, the lack of competition would mean the quoted price may not be the best from the perspective of the one inviting the bids or awarding the project.
In such an event, there are two choices, both entailing some costs. One, the entire process can be aborted and bids called again. There is direct calculable costs of this action, escalation in project cost through delay and the loss of opportunity; there is a also the lesser cost of the bid process itself. As opposed to this, if the project is awarded to the sole bidder, the only cost is the possibility of a better price discovery, if there were more bidders. However, there is no way of knowing if in a multiple bid situation the price discovered would have been lower.
Therefore, it makes sense to award a project even if there is only a single bidder. However, the government must make an internal assessment of costs or tariff, depending on the nature of the project, and set a sort of reserve price. If the single bid betters the reserve price then the projects should be awarded.
In the current environment when investment sentiment is extremely poor, the priority should be to facilitate projects and not get too caught up in procedures. The bid documents should provide for the possibility of projects going to a single bidder and the CVC would do well to ensure that such awards do not become controversial.
Courtesy: Economic Times
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