Highway Norms - Again some changes

In my last post I had mentioned that the Highway bidding norms are being constantly changed, here is one more change being proposed by the ministry of road transport and highways. According to an article in Business Line. The reason this time being the gap between the lowest and the second lowest bid. It is difficult to guess how do they plan to lower the bid difference.

Below is a verbatim of the same article

"We need to look at the formulation of the bidding process as there is a gap between the lowest and the next lowest bids,” Mr Nath said on the sidelines of the 156 {+t} {+h} annual general meeting of the Bengal Chamber of Commerce & Industry here on Wednesday

So let us say one contractor agreed to construct the road at 4cr/km while the other quoted 6cr/km based on the same data that is released by the ministry. What could be the reasons for such variations.

1. Primary reason would be the traffic projections figures assumed by each bidder. The lowest bidder would have very high traffic projections for the same road.
2. The first bidder might actually be undercutting, in order to spruce up his order book and might actually make lower or negative margins in some cases. If he decides on the other hand not to take a hit on his margins, he will have to lower the quality of construction which is not good in the long run. But can the bidder actually play around with the quality of the roads?Actually NO, there are performance guarantee bonds that the bidder signs and there are periodic assessment and checks as part of the progress payments received by the bidder for the value of contract completed by him. In case the NHAI is not satisfied with the quality of road, the can invoke the performance guarantee bond and terminate the contract.

Putting a norm on the difference between the two bids not being too wide, is like saying all the contracts form a cartel, and submit your bids in with a mean of X and a standard deviation of Y. Any contractor who bids outside the range is doing something wrong. Bar, Delist and discriminate him. Is this not in direct defiance of the entire logic for calling for bidding?

I believe putting a blanket ban saying that if there is a huge difference in the quotes, then have a rebidding or whatever outcome the ministry thinks is justified would be an incorrect judgement to pass. The variations in bids could be several and should be looked on an individual basis and in comparison to the variables assumed by the lowest bidder, rather than in isolation. Let us see what the ministry comes up as a solution to the process of bidding.