NHAI to treat unauthorised subcontracting in highway projects as fraud

NHAI has redefined norms for highway contractors, classifying unauthorised subcontracting as fraud and tightening rules on work experience claims and third-party securities

The National Highways Authority of India (NHAI) has tightened norms for contractors in highway projects to curb unauthorised subcontracting and weed out firms that falsify credentials to bag projects above their expertise level.

 

“Instances have been observed where concessionaires or selected bidders have engaged contractors without the required prior approval of the Authority or exceeded the permissible subcontracting limits. Such practices not only violate contractual norms but also pose risks to quality assurance, project timelines and regulatory oversight,” the ministry of road transport and highways said in a statement.

 

It added that any unauthorised subcontracting and subcontracting beyond permissible limits will now be classified as an ‘undesirable practice,’ attracting penalties on a par with fraudulent practices. Subcontracting refers to the outsourcing of a part of obligations under a contract by the primary developer to another party.

 

The move is part of several clarifications issued by the highway regulator in the request for proposal (RFP) for contractors. Deficiencies in subcontracting have drawn criticism from political opposition and government watchdogs in the past.

 

In August, the parliamentary public accounts committee (PAC) also flagged the practice of subcontracting in highway projects. The panel said the “unchecked layering” of contractors and subcontractors, particularly in engineering procurement construction, Build Operate Transfer and Hybrid Annuity Model projects, has led to diffusion of accountability. 

 

NHAI has also revamped disclosure norms for contractors’ previous work experience. “This has often been misrepresented by contractors to gain eligibility for large-scale highway projects despite having experience only in minor or peripheral works that do not reflect the complexity and scale of full-fledged highway development,” the ministry noted.

 

The authority has now clarified that “similar work” shall refer exclusively to completed highway projects that include all major components comparable to those required for the project being tendered.

 

The government is also clamping down on third-party securities such as bid security and performance deposits furnished by selected bidders. The ministry said some bidders had submitted financial securities issued by third parties, undermining accountability and raising concerns on enforceability and bidder liability.

 

“Now, it has been clarified to disallow such third-party sourced instruments, ensuring that only securities backed by the bidder or its approved entities are accepted. The step is expected to enhance financial transparency and improve the enforceability of contractual obligations,” the ministry said.

 

Since the Covid-19 pandemic, the highway sector has seen increased competition after entry barriers were eased during the nationwide lockdown, which experts said may have allowed less serious players into the sector.

 

The ministry said the clarifications will ensure that national highway projects are awarded to contractors with proven technical and financial competence, executed by authorised and accountable entities, and monitored with greater regulatory oversight.