Highway contracts: Easier entry norms pay off

The time and price overruns may very well be as a consequence of numerous causes, together with steep enhance in commodity costs, change in scope, delays in land acquisition and approvals; and pressure majeure occasions amongst others, Icra stated.

Eligibility standards relaxations introduced in earlier by the federal government for constructing highways by engineering procurement and building (EPC) and hybrid annuity mannequin (HAM) routes have began paying off. Aside from enhancing extra competitors amongst bidders to seize initiatives, it has ensured much less outgo for constructing stretches for the federal government, ranking company Icra has discovered.

Earlier this yr, the ministry of street transport and highways revised mannequin concession agreements for each EPC and HAM, paving the best way for these constructing stadium, hospitals and inns to additionally get into the freeway sector. The federal government additionally relaxed their monetary standards or eligibility.

“The EPC mode continues to stay extraordinarily aggressive with many bidders quoting at a reduction of as excessive as 30-35% to the NHAI’s base value. The BOT (HAM) has additionally witnessed heightened competitors leading to common premium to NHAI value decreasing to round 15% from 25-30% earlier and even adverse O&M bid in some instances. The variety of bidders has surpassed 40 contributors (of which certified have been 30) for a number of the EPC initiatives and 10-15 contributors (round 5-10 earlier) for HAM initiatives,” stated Icra’s Rajeshwar Burla.

Icra, nonetheless, stated the discounted bids to NHAI’s base value, together with the rise in commodity costs, might have a fabric hostile influence on the profitability of the contracting firms. “Bidding self-discipline subsequently stays a key for street contractors to take care of sufficient profitability and keep away from build-up of stress on working capital cycle,” he added.

The aggressive bidding for the initiatives may result in initiatives getting delayed or caught or below dispute as decrease profitability within the initiatives would constrain the contactor’s potential to soak up time and price overruns within the venture.

The time and price overruns may very well be as a consequence of numerous causes, together with steep enhance in commodity costs, change in scope, delays in land acquisition and approvals; and pressure majeure occasions amongst others, Icra stated.