Restoration of deposit provision in highway tendering process

The government has reinstated the earnest money provision (EMD) in the tender process for highway construction and consultancy contracts. He said the effect of the Covid-19 pandemic on the road sector has been neutralized.

The government’s decision also comes amid a growing tendency for bidders to bid abnormally low on construction and consultancy contracts.

“Since there is no EMD deposit, the bidders offer abnormally low prices for the tender. And, after winning the tender, they start looking for a subcontractor”, indicates the Ministry of Road Transport and Highways in a circular.

He added, “This trend will negatively impact the quality and timely completion of major road projects.”

In November 2020, when the first wave caused an acute financial crisis for the infrastructure sector, the government removed the bid bond rule. Indeed, it affected the ability of business entities to execute contracts in a timely manner. This also had a negative impact on tenders.

The government has also reduced the performance bond requirement from the normal 5 to 10 percent of the contract value to 3 percent, according to a finance ministry circular.

According to CIFAR group leader Rajeshwar Burla, the reintroduction of EMD is a step in the right direction. This should lead to a cooling of the aggressiveness in the bidding.

“The average number of bidders has increased over the last six quarters, also due to the flexibilities provided by the National Highways Authority of India (NHAI) in the technical qualification criteria and waiver of EMD requirements.

This has allowed many medium-sized contractors to bid on more projects. It also paved the way for new players to enter the road segment. Many actors, who previously worked as sub-contractors for Tier I and Tier II prime contractors, have started bidding on a stand-alone basis,” Burla said.

In the recent past, the number of qualified bidders has remained at around 40 for some of the EPC (Engineering, Procurement and Construction) projects.

Increased competition has resulted in discounted bids of up to 30-35% of NHAI’s estimated cost for EPC projects, he added.

Bidding discipline remains a key factor for road contractors from a credit perspective, failing which profitability and working capital management could be adversely affected. Those issues could cause projects to stall mid-stream, Burla said.

Dear reader,

Business Standard has always endeavored to provide up-to-date information and commentary on developments that matter to you and that have wider political and economic implications for the country and the world. Your constant encouragement and feedback on how to improve our offering has only strengthened our resolve and commitment to these ideals. Even in these challenging times stemming from Covid-19, we remain committed to keeping you informed and updated with credible news, authoritative opinions and incisive commentary on relevant topical issues.
However, we have a request.

As we battle the economic impact of the pandemic, we need your support even more so that we can continue to bring you more great content. Our subscription model has received an encouraging response from many of you who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of bringing you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism we are committed to.

Support quality journalism and subscribe to Business Standard.

digital editor

Comments are closed.