The authorities has restored the earnest money deposit (EMD) provision in the bidding process for freeway development and consultancy contracts. It mentioned that the impact of the Covid-19 pandemic on the freeway sector has been neutralised.
The authorities’s determination additionally comes in the backdrop of a rising tendency of bidders to make abnormally low bids for development and consultancy contracts.
“Since there is no EMD deposit, bidders are quoting abnormally low prices for the bid. And, after winning the bid, they start searching for a sub-contractor,” the ministry of street transport and highways mentioned in a round.
It added, “This tendency will have an adverse impact on the quality and timely completion of important highway projects.”
In November 2020, when the primary wave had precipitated an acute monetary crunch for the infrastructure sector, the federal government had eliminated the bid safety rule. This was as a result of it was affecting the power of economic entities to execute contracts well timed. It was additionally having an opposed impression on aggressive bidding.
The authorities had additionally lowered the efficiency safety requirement from the conventional 5-10 per cent of the contract’s worth to three per cent, in line with a round by the finance ministry.
According to Rajeshwar Burla, group head at ICRA, the reintroduction of EMD is a step in the correct path. It ought to end result in cooling off aggression in bidding.
“The common variety of bidders elevated in the previous six quarters additionally as a result of relaxations supplied by National Highways Authority of India (NHAI) in technical qualification standards and waiving EMD necessities.
This has enabled many medium-sized contractors to bid for greater quantum of initiatives. It additionally paved the way in which for entry of recent gamers in the street phase. Many of the gamers, who had been earlier working as sub-contractors for tier-I & II principal contractors, have began bidding on a standalone foundation,” Burla mentioned.
In the current previous, the variety of certified bidders has remained at round 40 for a few of the EPC (engineering, procurement and development) initiatives.
The elevated competitors has resulted in discounted bids of as excessive as 30-35 per cent from NHAI’s estimated value for EPC initiatives, he added.
Bidding self-discipline stays a key issue for street contractors from a credit score perspective, failing which, profitability and dealing capital administration might be adversely impacted. These points may end result in initiatives getting stalled halfway, Burla mentioned.