The Centre’s recent reforms to increase participation of mid-sized engineering, procurement and construction players in the tendering process are likely to intensify competition in roads, bridges, highways and tunnelling projects, ratings agency India Ratings and Research (Ind-Ra) said.
Accordingly, the series of reforms are expected to increase the participation of mid-sized engineering, procurement and construction (EPC) players in the tendering process for construction contracts.
“These relaxations however will also provide the much-needed relief to those construction contractors whose eligibility to bid for new projects has been hampered on account of Covid-led business disruptions,” the agency said in a report.
“These changes relate, among others, to relaxations in the eligibility criteria and norms for construction projects in the segment, which are bid both on the EPC and hybrid annuity model (HAM) or build-operate transfer (BOT) modes.”
Last month, the Department of Expenditure, Ministry of Finance, reduced the amount of performance guarantee for all construction contracts to 3 per cent of the value of the respective contracts from the existing levels of 5-10 per cent.
“This reduction is the result of a continued demand from infrastructure developers since the onset of Covid-19, which has impacted the overall systemic as well as entity-specific liquidity,” the report explained.
“The reform is likely to aid in timely project execution and alleviate liquidity concerns, given that companies are likely to have enhanced headroom for order tendering, which will help them maintain their revenue visibility.”
The report further cited that this reform is also significant for the industry, considering the shrinking bank credit to the sector even before the onset of the pandemic.
“The reduction in performance guarantee is valid for all existing contracts and will remain so for all contracts awarded until end-2021,” it elaborated.
“Furthermore, existing eligible projects can avail of the benefit till the end of the construction period, even if the same falls beyond 2021.”
However, the report pointed out that these benefits would not accrue to contracts where arbitration or court proceedings have already been initiated or are being contemplated.
“An approval from a higher authority of the concessionaire will be required for cases where higher performance security is envisaged by the latter.”
Besides, the Ministry of Road Transport and Highways (MoRTH) has reduced the minimum net worth criteria limit to 15 per cent of the projected EPC project value in the preceding financial year for bidders of national highway projects from 25 per cent.