NHAI eyes trimming bidders list, to limit unduly aggressive bids

Written by Timsy Jaipuria | Subhash Narayan | New Delhi | Updated: May 7 2014, 03:17am hrs
With a large number of developers abandoning flagship projects the GMR Group walked out of the Kishangarh-Ahmedabad project in FY13 the National Highways Authority of India (NHAI) is looking at ways to ensure against unduly aggressive bids.

While the GMR Group had bid a first-year premium of R636 crore for this project, the lowest bidder L&T had bid less than half that at Rs 303 crore.

In the case of the Ahmedabad-Vadodara project, IRB had bid R310 crore versus a mere R25 crore for the lowest bidder (see graphic). It doesnt help that, as Crisil points out, project returns in the sector are now in the 8-14% range, less than half the 22-26% projected by many investors initially.

The high-level committee on infrastructure financing chaired by Deepak Parekh has suggested, in its draft report, that NHAI should look at managing overenthusiastic and unrealistic bidding by limiting the number of bidders placing their price bids to just three to five players.

Aggressive bidding has led to several difficulties and delays... One of the principal reasons that has led to aggressive bidding is the pre-qualification of a large number of bidders for each project. The international best practice is to pre-qualify and shortlist 3 to 5 bidders for the stage of bidding, the draft for the second interim report of the committee said.

The draft report suggested pre-qualifying and shortlisting three to five bidders for the final stage of bidding as the final round of bidding for any project requires significant investment in the time and resources for submission of competitive bids.

The government is stuck since, if it does not accept the most aggressive bid, the CVC and the CAG will haul it up for violating the integrity of the bidding process and a possible loss to the government. A change in the selection process should be priority for the government, says Vishwas Udgirkar, senior director, Deloitte India.

Any shortlisting, however, will be difficult to do. In one project put out for bidding this year, there were 62 bidders, and their net worth ranged from Rs 28,882 crore in the case of L&T Infrastructure to Rs 74 crore in the case of Eagle Infra. While one suggestion, mooted some years ago, was to use the length of roads constructed or some other infrastructure development as a means to shortlist bidders, this was shot down as an attempt to favour larger bidders. Given the problems caused by ultra-aggressive bids, however, it is clear NHAI needs to find some way to get only serious bidders to participate in bids.