Bidding
L1, L2, H1 and QCBS: how government bids are evaluated
What L1 means, why L1 sometimes doesn't win, how QCBS weighs quality and price, how GeM's reverse auction works, and how MSE and Make in India preferences apply.
By GovtTenderHub editorial teamUpdated 8 min read
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In short
- L1 is the lowest-priced bid among the bids that passed technical evaluation. L2 is the next lowest, then L3. Under Rule 173 of the General Financial Rules, the contract should ordinarily go to the lowest evaluated responsive bidder, which is L1.
- H1 is the highest bid. It wins where the government is selling (scrap, auctions, leases), not buying.
- QCBS (quality and cost based selection) scores quality and price together. It's used mainly for consultancy, with weights such as 70:30 or 60:40 and quality capped at 80% (Rule 192). Works and other services can use it too, with quality capped at 30%.
- Price bids are opened only for technically qualified bidders. A low price with a missing document doesn't make you L1.
- MSEs quoting within 15% of L1 can match the L1 price and supply up to 25% of the order, under the MSE procurement policy. Class-I local suppliers within 20% get a similar right under the Make in India order.
"We were L1 but didn't get the order" and "how did L1 quote so low?" are two of the most common complaints in government bidding. Both come down to how bids are evaluated. This guide explains the ranking, the exceptions, and what it means for your price.
How bids are opened and ranked
Most tenders use a two-bid system (Rule 163 describes it for goods): a technical bid and a financial bid, submitted together but opened separately.
- Technical bids are opened first. The committee checks eligibility, experience, turnover, documents and technical compliance against the tender. Each bid is found responsive (meets the requirements) or not.
- Financial bids of responsive bidders are opened. Everyone else's price stays sealed.
- Prices are ranked: L1 (lowest), L2, L3 and so on. The evaluated price is what counts, which can include things the tender says to add, such as taxes, freight or the cost of deviations.
Rule 173 then says the contract "should ordinarily be awarded to the lowest evaluated bidder whose bid has been found to be responsive and who is eligible and qualified". That's L1.
L1, L2, H1 and T1 in one table
| Term | Meaning | Where you meet it |
|---|---|---|
| L1 | Lowest evaluated price among qualified bids | Almost all purchase tenders: goods, works, services |
| L2, L3 | Second and third lowest | Split orders, MSE purchase preference, if L1 drops out |
| H1 | Highest price | Sale of scrap or assets, auctions, licences and leases |
| T1 | Highest technical score (informal term, not defined in the rules) | QCBS tenders, before price is combined in |
| Responsive | Meets every essential requirement of the tender | Technical evaluation |
Why L1 sometimes doesn't get the order
- The price is not reasonable. The buyer compares L1 with its estimate and market rates. An unusually high L1 can lead to the tender being cancelled and re-issued.
- The price looks abnormally low. Buyers may ask L1 to explain how it can deliver at that price, and reject the bid if it can't.
- Purchase preference moves part of the order. Local suppliers (Make in India) or MSEs may be entitled to a share at the L1 price.
- Documents fail on checking. A certificate that turns out to be false or invalid disqualifies the bid, and can cost the EMD and more.
- L1 doesn't take up the contract. If L1 won't sign or give performance security, it loses its EMD, and the buyer may go to L2 or re-tender.
Negotiation is the exception
Rule 173 says negotiation after bid opening "must be severely discouraged". Where it's unavoidable in exceptional cases, it may be held only with the lowest evaluated responsive bidder. So don't pad your price expecting to negotiate: in most tenders, the price you submit is the price.
QCBS: when quality counts too
For consultancy, Rule 192 of the General Financial Rules allows quality and cost based selection:
- Technical proposals are scored first. Only those that reach the minimum qualifying score go further.
- Financial proposals of the qualified bidders are opened and scored, usually with the lowest price getting full marks.
- A combined score is worked out with the weights given in the RFP, for example 70:30, 60:40 or 50:50 (quality : cost). The quality weight "in no case should exceed 80 percent".
- The highest combined score wins.
A worked example with 70:30 weights:
| Bidder | Technical score | Price | Financial score | Combined (70:30) |
|---|---|---|---|---|
| A | 90 | ₹12 lakh | 83.3 (10 ÷ 12 × 100) | 63 + 25 = 88.0 |
| B | 75 | ₹10 lakh | 100 | 52.5 + 30 = 82.5 |
B is L1 on price, but A wins on the combined score. The procurement manuals call the winner under QCBS "H1", the highest combined score, which is a different H1 from the highest price in a sale.
QCBS is no longer only for consultancy. Since a Department of Expenditure order of 29 October 2021, clarified on 1 November 2023, works and non-consultancy services can also use QCBS where quality matters. For them, the weight on quality can't exceed 30%, and QCBS can't be combined with two-stage bidding, reverse auction or limited tenders.
For standard or routine assignments, such as audits and the design of non-complex works, the rules point to least cost selection instead: technically qualified proposals compete on price alone (Rule 193).
GeM: evaluation and reverse auction
On GeM, the bid document says how offers are compared. Of the live GeM bid documents GovtTenderHub has read:
- 90% use total value wise evaluation: one L1 for the whole bid.
- 9% use item wise evaluation: a separate L1 for each item, so different sellers can win different items.
- 36% have bid to reverse auction switched on: after technical evaluation, qualified sellers bid their prices down in an online auction, and the auction's lowest price decides L1.
Not every qualified seller gets into the reverse auction. GeM's terms give the buyer two rules to choose from: the lower-priced half of the qualified bidders (rounded up, so 7 qualified means L1 to L4 go through; nobody is dropped if only two or three qualify), or everyone except the highest quote (H1 elimination). MSEs within 15% of L1, and Class-I local suppliers within 20%, are let in as well when L1 is not one of them. If a lower bid comes in during the last 15 minutes, the auction is extended by 15 minutes.
Under Rule 149, GeM purchases above ₹10 lakh must go through a bid or a reverse auction; between ₹50,000 and ₹10 lakh a buyer can pick the lowest price from sellers of at least three manufacturers, and up to ₹50,000 it can buy from any seller that meets the requirement.
Purchase preference for MSEs and local suppliers
Two policies can give a share of the order to a bidder who isn't L1, provided they match the L1 price:
- MSE procurement policy: when L1 is not an MSE, micro and small enterprises quoting within L1 + 15% can match the L1 price and supply up to 25% of the tendered value, shared among them. If the item can't be split, the whole order can go to the MSE. This covers goods and services bought by central ministries and CPSUs, not works or traded goods. See MSME benefits in government tenders.
- Make in India order (Public Procurement (Preference to Make in India) Order 2017, revised July 2024): when L1 is not a Class-I local supplier (at least 50% local content), a Class-I supplier within 20% of L1 is invited to match L1. It gets the whole order if the item can't be split; otherwise L1 gets half and the matching Class-I supplier the other half. Class-II suppliers (20–50% local content) get no preference, and the preference doesn't apply in QCBS.
Whether either applies is stated in the tender. In 85% of the GeM bid documents we've read, the MSE purchase preference is switched on.
How to price with L1 in mind
- Qualify first. Every rupee of discount is wasted if the technical bid fails. Check each eligibility line and document before you work on price.
- Know past winning prices. Tender results (AOC on NIC portals, and bid results on GeM) show who won and at what price. Use them to judge the market.
- Price everything the evaluation adds. If freight, installation or taxes are counted in the evaluated price, leave them out and you'll look cheaper but win at a loss.
- Don't quote a price you can't deliver at. An abnormally low price can be questioned, and a contract you can't complete costs your performance security and your record.
Common questions
What does L1 mean in a tender?
L1 means "lowest one": the lowest evaluated price among the bids that passed technical evaluation. L1 usually wins the contract.
What is the difference between L1 and H1?
L1 is the lowest price and wins when the government is buying. H1 is the highest price and wins when the government is selling, for example scrap auctions.
What happens if two bidders are L1 with the same price?
The tender document sets the tie-break. Common methods include a draw of lots, preference to MSE or local suppliers, or splitting the order. Check the tender's evaluation clause.
Can L2 get the order?
Yes, in some cases: when L1 is disqualified or backs out, when the order is split among bidders, or when purchase preference lets an MSE or local supplier match L1.