Non adherence to QCBS based evaluation in Wagon Tendering pushes Railways into further struggles

The Railways issuing orders has always been a happy occasion for the wagon makers like Titagarh Wagons, Texmaco, their investors as well as several other unlisted manufacturers.

The department has just come out with one order, but in an unprecedented development, almost all the major wagon makers have refused to produce the wagons for the price quoted by L1 manufacturer. The industry has described the price as predatory as it is even below cost of material.

As a consequence, the Railways, against a total tender volume of 8,509 wagons, has just issued order to only one wagon maker for 1871 wagons.

All this mess happened due to non-adherence of standard bid practice wherein QCBS based evaluation of the proceedings would have made the bidding technically more viable and cost-wise appropriate.  QCBS uses a competitive process among shortlisted firms that takes into account the quality of the proposals and the cost of the services in the selection of the successful firm. The relative weight to be given to the quality and cost shall be determined based on “formula” for each case depending on the nature of the assignment.

The price quoted by the bidder and accepted by the Railways with respect to the order for wagons of type BOXNHL is Rs 10.80 lakh a piece, lower than previous year’s price of Rs 11.74 lakh. The realistic price should have been not less than Rs 13 lakh, the industry has told the ministry.

As per Railway rules, all the other bidders can accept this L1 price and produce their share out of the total tendered quantity.  This clause actually is detrimental to the quality output of any orders which is proven in various Bids earlier by different organisations. Railways should have sensed this situation and invoked the clause of QCBS based evaluation parameters and related Scoring in determining the L1 Bidder.  However this did not happen that which led Railways to compromise with the rate quoted by L1 bidder, and eventually due to various developments, when the other bidders (L2/L3/L4 and L5) were approached to take up the order on L1 price, they have rejected the offer since it is a proven fact that L1 price in this particular bid is a highly loss making, and hence they have refused, and written to Minister of Railways Suresh Prabhu and to Railway Board Chairman A.K.Mittal to revisit and revamp the issue of pricing of wagons.

What is the immediate trigger for the crisis?

“In the face of drought of orders, certain wagon builders, for their own reasons, have put in predatory bids, which are way below even the bare cost of materials,” said the letter addressed to minister Prabhu by the industry.

“It is an existential crisis for the whole industry. Despite repeated pleas, the Railways, in its wisdom, has decided to accept a price which is unrealistic,” said an industry insider.

“In the tender for 2015-16, the L1 price quoted by one large but new company for BOXNHL wagon is Rs 10.80 lakh, whereas the aggregate cost of materials alone for the said wagon is around Rs 13 lakh. Adding to it the conversion cost including labour, consumables, power, finance charges, and other overheads, the cost (without profit) would be substantially higher,” the letter said.

In arriving at a fair price to end this crisis, the industry, coming under the Association of Rolling Stock Manufacturers of India, has suggested that the cost of production at the wagon manufacturing units owned by the government could well be used as a reference.

“Alternatively, you may direct the matter to be referred by the Railways to the Bureau of Industrial Cost and Price or any other agency to examine and work out a fair price,” the letter said.

“We are staring at prolonged closure of most of the manufacturing units in the country if this crisis is not resolved,” the official, in charge of the wagon division of one of the key manufacturers, said.

The development comes close to some grandiose announcements by the ministry of transforming the wagon and other Railways related industry in the country, attracting foreign direct investment and similar other pronouncements, all of which had made investors lap up scrips like Titagarh, Texmaco, Kalindee, Cimmco among others.