Easier norms to shore up participation during the pandemic gave smaller infrastructure contractors a bigger share in India's road construction projects.
Among the top road award winners in the last three fiscals, most are unlisted and tier-2 firms, according to the data from the National Highways Authority of India.
That has already prompted the NHAI to bring back some of the requirements to ensure quality. Aggressive bidding by smaller players, including offering steeper discounts, exposes the infrastructure sector to potential delays and quality issues.
Eased rules included monthly payments to contractors and winners of hybrid annuity projects, lower performance security at 3% of the contract value, and releasing retention money. The relaxed guidelines allowed smaller companies to bid for bigger projects.
"The number of bidders increased significantly to as high as 40 for many projects, resulting in significant discounts in the bid prices," said Vinay Kumar Gurram, senior analyst who tracks infrastructure at ICRA Ltd. Earlier, each project used to get around 10 bids.
In the last three fiscals, Gawar Constructions Ltd., GR InfraProjects Ltd., and NKC Projects Pvt., all three tier-2 contractors, featured among the top bidders of projects by road length.
In the financial year ended March 2020, the NHAI bid out 2,513-kilometre roads. Gawar Construction led with 10% of the total highway contracts worth more than Rs 9,000 crore in three years. GR InfraProjects netted 10% of the total length awarded by the NHAI, while NKC Projects got 5%.
By comparison, PNC Infratech Ltd. got 3% of the total road length awarded, the highest among listed peers.
In FY21, the NHAI bid out 4,026-km of roads. While the NHAI did not disclose the project costs, GHV, GR InfraProjects and Gawar Construction were among the top successful bidders, ahead of several large listed companies. Dilip Buildcon Ltd. made it to the top 10.
In fiscal 2022, the NHAI awarded 2,991.7-km roads. KCC Buildcon and GHV India were among the top bidders, again ahead of bigger publicly listed companies like Ashoka Buildcon Ltd.
Even though easier norms are in place till October, the Ministry of Road Transport and Highways tightened guidelines to ensure quality of work. It has asked all project-executing agencies to ensure that in case of abnormally low bids, additional performance security is collected in line with the norms prevailing before the pandemic.
In February, the ministry also reinstated bid security and earnest money deposit as the effect of pandemic on the highway sector waned and the authority received abnormally low bids for road and consultancy contracts.
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