Tender process for large projects is broken: L&T chairman A M Naik

The tendering process for awarding construction contracts by the government is broken and needs to be fixed urgently to reduce cost overruns to the tune of trillions of rupees, said Anil M Naik, outgoing chairman of Larsen & Toubro (L&T), India’s largest construction and engineering conglomerate.

In an exclusive interview here with Business Standard, 82-year-old Naik — who would face L&T shareholders on Wednesday for the last time as chairman — expressed willingness to collaborate with the government after retirement on September 30 to streamline the tendering system or on any project of national interest as long as it “does not require travel to New Delhi”. 

“Saudi Arabia is giving contracts worth billions of dollars to L&T. But in India, large-sized contracts are divided into separate packages and then the contracts are awarded to multiple companies. As a result, while we finish our construction in time… other less experienced players are left behind, resulting in the entire project falling behind,” said Naik.    

“Many a time less qualified companies win projects just by quoting the lowest figure, but they fail to complete them in time. This needs to change in the national interest,” he stressed.

For example, the Rs 37,000-crore Mumbai Metro 3 project, which would connect South Mumbai to the airport and Aarey Colony, is nearly complete in the two packages executed by L&T. However, several other parts of the project with other contractors are not ready, leading to a delay in commissioning. “In India, we tend to divide one project into several parts to increase competition, but we have observed that less technically qualified contractors are unable to complete such projects. Governments, both at the Centre and in states, should revamp the tendering process, so that projects are completed in time and no cost overrun is allowed,” the industrialist said.

 Naik, who is credited with building up L&T from a Rs 4,000 crore m-cap company in 1999 (when he took over as CEO & MD) to a Rs 5 trillion m-cap (including IT arm) giant, lauded Prime Minister Narendra Modi for transforming the infrastructure landscape of the country with new highways, bullet trains (work in progress), and infrastructure projects. 

“A government with several partners is not conducive for business and any government with multiple partners like in the 1990s will just lead to chaos in the country. Modi’s track record in creating world-class infrastructure in India is exemplary,” he said. 

Citing a survey conducted in January, the L&T chairman said Modi’s approval rating is highest at 78 per cent, which is way ahead of US President Joe Biden at 40 per cent. “If the Indian economy has to grow, we require strong leadership and any attempt to bring down a well-performing leader like Modi is not good for the country,” Naik said.

 After retirement from L&T, Naik said he would stay busy with his role as chairman of L&T-Mindtree until next year when he would hand over the baton to S N Subramanyan, currently CEO and MD of L&T.

 Naik would also remain chairman of L&T Employee Trust, which owns a 13.7 per cent stake in L&T. The Trust’s stake is expected to go up to 14 per cent after L&T’s Rs 10,000 crore buyback is over. “In 2004, L&T employees held zero stake but after our cement demerger deal with the Aditya Birla group, the employees received a sizable stake in the company which has now gone up to 13.7 per cent, worth Rs 50,700 crore,” said Naik, recalling his struggle to take control of the construction giant from the Aditya Birla group, which had acquired the stake from Reliance Industries.

He would also look after the day-to-day affairs of his personal charity initiatives, which have set up schools and hospitals in Mumbai and south Gujarat.