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| Building entrepreneurs | | Stiffer pre-conditions may prevent capacity-building |
| Business Standard / New Delhi Aug 12, 2009, 00:52 IST |
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With the government stiffening the minimum qualifications for contractors to bid for various infrastructure projects, there is a fear that the new conditions may end up favouring the big boys. By excluding the smaller firms, the government may also be driving up costs since the competition will be more restricted than before. The immediate provocation for the new criteria is the Request for Qualifications (RFQ) for various National Highway Authority of India (NHAI) projects. To qualify for a Rs 500 crore project, for instance, a firm should have executed projects worth at least Rs 1,000 crore in the last five years (as against Rs 500 crore stipulated till now). Given the country’s need to invest vast sums in the physical infrastructure each year, it obviously needs a large number of players to do the job, and they can gain experience and acquire expertise only if they are encouraged to make their entry. Instead, making it a semi-closed shop could raise costs, and slow down work since not enough companies qualify for all the projects on hand.
There are some obvious advantages in getting big firms to get into big projects; they have greater financial resources, can mobilise better as a result, and probably have better processes and therefore quality standards. It is also true that the new rules apply only to build-operate-transfer (BOT) projects where the contracting firm has to take on a financial responsibility over an extended period of time. However, any project has consultants who are supposed to make sure that the required quality standards are being met. And since it is the government that is doling out the contracts, it could be argued that it is its responsibility to give some thought to domestic capacity building. BOT contracts presumably have financial safeguards built into the way they are structured. And if the argument is that since there is no overall cap on the number of projects that a contractor can bid for, it is easy to see that the solution is to have such a cap. A cap on cumulative projects bid for should operate irrespective of the size of any specific project, as it should relate to the size of the contracting firm.
It is fair to ask whether, if such stiff qualification criteria had been in place, entities like GMR and GVK would have emerged as major players in building infrastructure. The GMR group, for instance, is building the new Delhi airport and is developing or bidding for airport projects abroad. It might be argued that this is a grey area since the model concession agreement leaves individual ministries with some leeway to vary the pre-qualifications, but it is surely a better alternative to have rules that do not need to be tweaked to deal with specific situations. It is not that the rules as they have existed till now allow firms with no experience at all to bid for large BOT projects; the condition so far has been that past experience must equal the size of the project being bid for—which is a reasonable qualification.
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