Longer-defect liability clause in new road bidding norms likely

The road transport and highways ministry wants longer defect-liability period and better safeguards to be added in the new Engineering Procurement Contract (EPC) model of bidding.

The Planning Commission is preparing the new model concession agreement for EPC projects and the ministry has raised these points in the draft shared with them. “We want a longer defect-liability period or allow the road developer to maintain the road for a longer period so that he does not compromise on the quality of the road built. We have written to the Planning Commission,” said a senior ministry official who did not want to be identified.

The defect liability period makes the contractor liable for any fault only for a year, after the road is complete. Whereas, in a build, operate and transfer (BOT) the developer has to maintain the road for 18 years after it is built.

“The new EPC model should also have more safeguard to check the developer from increasing the cost of the project and building poor quality roads. The new model needs upgrade, if we plan to replace it with annuity mode,” the official said.

In the existing EPC model, a contractor builds the road and the government makes the payment. Any change in the design and the cost of input cost is also paid by the government. The current model also does not mandate the contractor to maintain the road.

With the average annual annuity outgo of the government reaching to Rs 5,263 crore, it is looking at shifting from awarding projects on EPC than on annuity. BOT (annuity) is one among the two Public-Private Partnership modes on which the road projects are awarded. The other is BOT (toll).

Unlike the BOT toll model where the private operator takes the risk of toll collection, the government mitigates the risk of toll income in the annuity model by guaranteeing six monthly payments over the concession period, which normally goes up to 18 years. Many sections in the government have also opposed the annuity on the ground that it becomes very costly for the government to build roads, on this mode and prefer EPC mode over annuity. The government has so far awarded 41 projects for Rs 24,386 crore.