Andhra Pradesh High Court orders review of Re 1, other extremely low defence bids

NEW DELHI: In a ruling that can have far-reaching consequences for the defence industry, the Andhra Pradesh High Court has held that contracts cannot be mechanically awarded to the lowest bidder when the quoted price is so low that it raises doubts about the company's ability to deliver.

Last week, the Andhra Pradesh High Court at Amaravati said that when a bid value is abnormally low, a viability assessment needs to be conducted before the contract is awarded.

The court ruling came in a case concerning the development-cum-production partnership (DCPP) model of the Defence Research and Development Organisation (DRDO), under which companies are invited to co-develop weapon technologies. Firms are initially invited to bid for a limited development order, typically covering a small number of prototypes.


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The lowest-ranked bidders selected under the tender then work with DRDO to develop, test and demonstrate the system against the stipulated performance requirements. Once the equipment clears the required developmental and user trials and is found fit for operational induction, the armed forces can place larger production orders.

Because the initial development phase is limited in quantity but carries high upfront costs, including engineering, trials and certification, companies may be willing to absorb part of the initial expenditure, or even incur losses, at that stage in the expectation of a larger follow-on order.

There have been instances in the past where abnormally low bids have been placed during DCPP competitions. In one particular case, a company even submitted a bid of one rupee to develop prototypes, resulting in it being selected as the DCPP winner for a weapon urgently needed by the armed forces.

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The Andhra HC ruling came in a petition filed by defence player Jaykay Enterprises regarding a DCPP project to develop the processor-based moored mine - next generation. The company alleged that the winner of the contract, Apollo Micro Systems, had submitted an abnormally low bid that did not even cover the basic cost of materials required to manufacture the mines.

In its judgement, the HC referred to a procedural failure on the part of DRDO, as it had not conducted a pre-award scrutiny for an abnormally low bid, as mandated under the DRDO Procurement Manual, 2025. It has asked the relevant authorities to conduct the scrutiny and proceed with the contract only if all conditions are met.