Govt sweetens highway contracts for top-rated ones

New Delhi - The Indian government has introduced a performance-based incentive framework for national highway contractors in order to promote high-quality construction. Under the revised model concession agreement, contractors with a rating above 80% will have to provide a lower deposit of only 3% of the project value, while those rated between 70% and 80% must deposit 4%, and those rated below 70% will need to put down 5%.

This change is intended to encourage highly-rated contractors, as quality is the top priority in highway construction. However, the additional security may pose cash flow challenges for lower-rated contractors. The government has also imposed penalties for fatal accidents on highways and introduced a formula-based compensation mechanism with a cap. Additionally, higher standards have been set for land acquisitions, and price adjustments for key raw materials are being implemented to align with current needs.

The revised framework aims to make EPC contracts more attractive while addressing previous hurdles. As more EPC bids are expected in the current year and the next, contractors with above-average ratings will find the financial advantage more appealing. Jagannarayan Padmanabhan, a senior director at Crisil Intelligence, notes that the revised framework includes both contractor-supportive and authority-protective changes, though some restrictions on arbitration and contractual limits may affect claim recovery.

The government plans to award the highest number of highway projects in the EPC mode this year, with the National Highways Authority of India selecting 26 projects under EPC, 21 under HAM, and seven under the BOT model for awarding.