Govt's new rules may bar non-performers from bidding for new road projects

The new EPC document in the works could ensure that the companies that have missed deadlines for their previous projects will not be able to take part in the bidding process for the new ones

The government is putting in place stringent rules that will effectively bar non-performers from bidding for fresh highway projects. The new engineering, procurement and construction (EPC) document in the works could ensure that the companies that have missed deadlines for their previous projects will not be able to take part in the bidding process for the new ones, unless they complete their existing assignments.

EPC contracts are fully funded by the government and are easier for firms to execute, since they are not dependent on traffic volumes or financing uncertainty such as in the case of public-private partnership models. Besides keeping the non-performing firms at bay, the proposed norms would ensure timely completion of contracts, a senior road ministry official said.

“The move was contemplated after some companies — Reliance Infrastructure, Madhucon Projects, Larsen & Toubro, and Gayatri Projects — were missing crucial milestones for their projects but participated in the tender for new projects,” another ministry official said, adding these firms continued to bid aggressively for the new set of projects even when their earlier projects were delayed.

Madhucon Projects and Gayatri Projects were not available for comment.  Reliance Infrastructure and L&T did not respond to queries. “Major projects take time because of delays in getting the Right of Way. The government is not supposed to invite bids for the projects if 90 per cent of land is not acquired but they are tendering projects with 40-50 per cent of land in possession,” said a company executive.

“An output-based performance participation will certainly bring in discipline within the bidders to resolve the issues speedily and will discourage them from hoarding projects. The flipside is that it can also act as a dampener when the issues are not purely attributable to shortcomings of the bidder. Due safeguards need to be built in the standard documents to take care of such genuine concerns,” said Jagannarayan Padmanabhan, director, CRISIL Infrastructure Advisory. 

The National Highways Authority of India (NHAI) will not directly blacklist or debar such companies from bidding in the future but would ensure they bid for fresh projects only if they have either completed the earlier projects or at least met the required milestones, said an official. “Blacklisting companies is not the solution. It hampers competition in the sector. It can also lead to non-performing assets (NPAs) for banks. Stricter guidelines was the need of the hour,” an NHAI official said.

In November 2017, the NHAI had threatened to terminate the projects of 20 companies, including L&T Infrastructure, HCC, Essel Infra, MBL Infra, and Soma Enterprises, which were delayed. Both the central government and the NHAI, however, this time are of the view that termination of contracts and debarring companies from bidding is not the solution.