Centre relaxes payment mechanism for govt-funded highway contracts

Contractors to be given funds every month

The Centre has relaxed the payment mechanism for engineering, procurement, and construction (EPC) or government-funded highway contracts to provide more liquidity in the hands of contractors.

Contractors will now be given funds every month, rather than on the basis of the milestone achieved. While the amount will still be based on work completed, the method of providing periodic payment ensures ready cash.

The Ministry of Road Transport and Highways has asked the National Highways Authority of India (NHAI) and various state governments to adopt the new payment model. This decision comes in response to demands made by construction firms, which were struggling for liquidity.

The government has allowed for the release of retention money to be released in proportion to the work executed. Retention money  is part of the performance security.

For instance, if a contractor has completed a 2-km stretch of road, as against the target of 10 km, the government will release a fifth of the amount. 

 

The Centre has also extended the time for a contractor to meet the requisite conditions under contract obligations, from the present three months to six months. The sub-contractor of a highway project will be paid directly through an escrow account.

In addition, it has waived penalties for delay in submission of performance security, or bank guarantee, in a new contract between March and September 2020.

As regards the build-operate-transfer and toll-operate-transfer models, the concession period shall be extended — for the loss in collection of user fee — by a period in accordance with the contract till daily collection goes below 90 per cent of the average daily fee.

For national highway tolling contracts, loss in collection of fee may be compensated in accordance with the contract.

The NHAI has also gone digital, and adopted a unique Cloud-based and artificial intelligence-powered Big Data platform — data lake and project management software.

Project management has moved completely from manual to online. Documentation, contractual decisions, and approvals are now being done through the portal.