KATHMANDU, July 15: Nepal has abolished the long-standing practice of awarding public contracts solely to the lowest bidder, introducing a new system that will base contract awards on average pricing instead.
The change comes through the Second Amendment to the Public Procurement Act, 2007, which was recently passed by Parliament. The government says the revised law is aimed at making public procurement faster, more transparent, and more practical.
Under the previous system, contracts were routinely awarded to the bidder quoting the lowest price. Authorities say these encouraged contractors to submit unrealistically low bids, often below actual project costs, leading to poor quality work, repeated deadline extensions, and delays in completing projects.
The government believes the new approach will curb such practices by discouraging companies from underquoting simply to secure contracts.
The Federation of Contractors' Associations of Nepal welcomed the amendment, describing it as a major reform for infrastructure development. According to the federation, ending the low bidding system will reduce the tendency of contractors to win projects with unrealistic prices and later abandon or delay them.
Federation General Secretary Shiv Hari Ghimire expressed confidence that the amendment would help resolve many long standing problems in Nepal's construction sector.
Govt mandates implementation of E-procurement system in all age...
"The government's amendment is a welcome step. We expect it to address most of the challenges facing infrastructure development," he said.
The amended law also introduces stricter conditions before procurement can begin. Public agencies will no longer be allowed to initiate procurement without securing budget allocations or confirming funding sources.
In addition, land acquisition, compensation payments, site availability, and environmental approvals must all be completed before tenders can be invited.
The law also standardizes the preparation of cost estimates. Project estimates must now be prepared according to government approved standards, a move expected to improve the accuracy of project costing.
The amendment further clarifies the responsibilities of public agencies, contractors, suppliers, and consultants. Government employees who complete projects on time and maintain quality standards will be eligible for incentives, bonuses, and other benefits. Contractors delivering quality work will also receive incentives and certificates of recognition.
The performance guarantee requirement has been capped at five percent.
Other key provisions include recognizing the combined qualifications of companies that merge, shortening bid submission deadlines, and making decisions of the Public Procurement Review Committee legally binding.
Construction experts say the new system could reduce unhealthy competition in public procurement. Under the previous framework, contractors frequently competed by offering extremely low prices, making it difficult to maintain quality while increasing project costs and delays over time.
The average price model is expected to encourage companies to submit bids based on realistic project costs rather than unsustainable pricing. Industry representatives believe the reform could improve construction quality and help government projects finish on schedule.
However, experts caution that implementation will determine the success of the new system. They stress that the method for calculating average prices must be transparent, objective, and scientifically sound. Without clear evaluation criteria, concerns remain that favoritism or irregularities could persist.
They also argue that contract awards should consider more than price. Technical capability, past performance, and a contractor's financial strength should all play an important role in the evaluation process. Simply replacing the lowest bid system will not be enough unless implementation is effective.
The Federation of Contractors maintains that the amendment will make Nepal's construction sector more organized and professional. It thanked the Prime Minister, the Ministry of Infrastructure Development, and government officials involved in pushing the procurement reform.
The federation has also urged the government to include price adjustment provisions for contracts of all durations when amending the Public Procurement Regulations.
The end of Nepal's lowest bid system is expected to reduce unhealthy competition in the construction sector. Whether the reform succeeds, however, will depend on fair, transparent, and effective implementation.
