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Systemic Improvement in Preparation of Estimate

Systemic Improvement in Preparation of Estimate

18.0 Brief Introduction:

A Parallel Rate contract was finalized with Contractors on Limited Tender basis to carry out various outfitting activities on board ships so that slipping of targets can be overcome, the desired progress can be achieved and ship delivery schedule can be met.

18.1 Background:

During Intensive Examination of the Rate Contract, it was observed that initially separate contracts were placed on different specialized Contractors to carry out different specialized jobs of overall value of Rs. 39 Cr. on board ships. Due to poor performance and inability to meet the delivery schedule, the work was offloaded from these contractors and MDL entered into Parallel Rate Contract on limited tender basis to complete the balance activities. This time the estimated quantum of work was of Rs. 104 Cr to be carried out by 3 contractors whereas the actual work got completed at the cost of Rs. 65 Cr. Thus there was huge gap in awarded cost and completed cost.

Also, the initial separate contracts on specialized were not closed and they continued to do their jobs. One of the reason for poor performance by these contractors was mentioned as that they had quoted very low value against the tendered job. Thus there were two rates existing for same type job. It was observed that all relevant factors were not considered while estimating the work to be sub-contracted in initial contracts as well as the subsequent parallel rate contract.

18.2 Implementation:

The following Systemic Improvements were suggested by Vigilance Department and a memorandum to this effect was issued by CMD for compliance by all concerned, so as to avoid acceptance of tender at very low rates without looking into the merit of the offer and paying high rates later on to complete the work.

(i) The complete scope of work is to be considered while preparing the estimate.

(ii) In case, estimate is prepared based on LPP, various indices like WPI, labour index, oil prices, metal index, FE fluctuations etc. are also be considered. Quantity, test & trial requirements, delivery schedule, commercial conditions like guarantee, PBG, SDBG etc. also be taken into consideration. The worksheet of estimate should clearly indicate the factors considered.

(iii) In spite of taking all possible factors in to considerations while preparing estimate, there may arise a situation of freak low rates either due to some suppliers quoting entry level prices OR under-quoting without referring detailed scope of work OR suppliers not having sufficient experience to comply the stringent parameters of naval equipments and its test/inspection requirements. Though the purchase manual is having provision of ‘Additional bank guarantee’ for freak low bidders, it is desirable to evaluate the techno-commercial offers w.r.t. technical competency and financial capacity of the bidders in compliance with tender requirements prior to issuance of technical clearance report by TNC, in order to avoid freak-low L1 bid situation.

(iv) Following precautions are also to be taken while preparing the estimate:

(a) Verify that LPP is not an emergency order based on emergency PR/tender.

(b) Verify whether the LPP order is freak low / high price order as a special case.

(c) Verify the LPP order was completely and timely executed.

(d) Whether there were any major deviations/waivers requested/accepted during execution of such order.

(v) Efforts should be made to prepare all inclusive, accurate and realistic cost estimate so that situation of ‘PNC evaluated estimate’ is minimized.

18.3 Impact and Benefits:

With reference to the Systemic Improvement as suggested and implemented the irregularity and differences between the actual cost and the estimated cost as well as the cases of Freak Low Bid have been significantly reduced.


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  • Mazagon Dock Shipbuilders Limited,
    Dockyard Road, Mazagon,
    Mumbai - 400 010,
    Maharashtra, India.
  • Telephone No.:
    Board: +91 - 2376 2000, 2376 3000,
    2376 4000

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