The -21% Discount Trap: Why Your L1 Bid is a Losing Strategy

Stop celebrating that L1 bid. You may have just signed your company’s death warrant.

A new report from ICRA reveals a chilling trend: the average bidding discount for Hybrid Annuity Model (HAM) projects has hit a staggering -21% in the first ten months of FY2025-26 [1]. This comes as the number of road project awards has fallen by 24% in the first eight months of the fiscal year, creating a desperate scramble for a shrinking pool of work.

With 20-25 bidders still showing up for every NHAI tender [2], contractors are bidding at suicidal levels just to keep their machinery from going idle. But winning a project at any cost is a strategy that leads directly to financial ruin.

The Math Doesn't Work

Let's be clear: when you bid 21% below the authority's estimated cost, you are not being "competitive." You are betting that you can build a complex, multi-year infrastructure project for significantly less than the experts who designed it believe is possible. One contractor recently bid 48% below the estimated cost for a project in Madhya Pradesh [3].

This isn't just aggressive; it's suicidal. You are promising to deliver a complex infrastructure project for a price the government itself has calculated to be insufficient. The inevitable result is a compromise on quality, materials, and safety, followed by severe financial distress.

The Government is Clamping Down

Regulators are not blind to this. They know that a race to the bottom on price ultimately leads to failing infrastructure and bankrupt contractors. That's why MoRTH has tightened the rules on Additional Performance Security (APS).

Previously, APS was only triggered for bids more than 20% below the estimate and was capped at 3%. Now, the cap is gone, and APS kicks in for any bid that is just 10% below the estimated cost [4]. This means your low bid will tie up significantly more of your working capital in the form of bank guarantees, putting further strain on your already thin margins.

How to Avoid the Trap

Winning a tender should strengthen your company, not cripple it. It's time to stop the madness.

1. Price for Profit, Not Just to Win. Your goal is not to have the lowest price; it's to have the lowest viable price that allows you to deliver a quality project and make a healthy margin. If the numbers don't work, have the discipline to walk away.

2. Calculate Your Real Costs. Your bid must account for the increased cost of capital from the new APS rules, potential project delays, and input cost inflation. The price you submit must reflect the project's true financial picture, not a fantasy.

3. Focus on Your Technical Score. With the government increasingly focused on quality, a strong technical proposal can give you an edge that isn't just about price. As one report noted, the ministry has even removed the financial bid component for selecting consultants, focusing purely on technical merit [5]. This is the direction the industry is heading.

The L1 trophy isn't worth the financial hangover. Build your bids to win, but on your terms.

References

[1] ICRA Press Release. (2026, February 25). Road execution by MoRTH likely to moderate to 9,000-9,500 km in FY2026-27 owing to slowdown in project awarding. https://www.icra.in/CommonService/OpenMediaS3?Key=49f76104-212f-45b6-ae04-1fee96638f61

[2] PL India. (2026, February 24). Conect. https://plindia.com/ResReport/Conect-24-2-26-PL.pdf

[3] The Times of India. (2026, January 27). Aggressive low bids put NHAI in a fix, trend may impact quality. https://timesofindia.indiatimes.com/india/aggressive-low-bids-put-nhai-in-a-fix-trend-may-impact-quality/articleshow/127580065.cms

[4] The Financial Express. (2025, May 27). Road contractors who bid too low will have to pay more: Experts weigh in. https://www.financialexpress.com/business/industry-road-contractors-who-bid-too-low-will-have-to-pay-more-experts-weigh-in-3859031/

[5] The Federal. (2026, February 13). Falling bridges, failing roads: Inside India's infrastructure crisis. https://thefederal.com/category/news/roads-bridges-new-infra-poor-quality-l1-reform-229775