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The Ministry of Road Transport & Highways (MoRTH) has extended till 31 October some of the relief measures extended to contractors and developers in the road sector and has also announced the reinstatement of bid security/earnest money deposit (EMD) deposit over the last two years in view of the Covid-19 pandemic.
Rating agency Icra expects the competitive intensity to moderate going forward with the reinstatement of bid security and collection of additional performance security for abnormally low bids.
Continued relaxations of monthly payments, lower performance security and release of retention monies will support the working capital requirements of contractors/developers, it added.
Rajeshwar Burla, group head, corporate ratings, ICRA, said: “With less opportunities in the state and private sector capex which were impacted due to the pandemic, many players have been bidding for Central Government projects in the past two years leading to heightened competition. This along with relaxations in eligibility criteria and relaxation in the EMD requirements has increased the number of bidders for NHAI/MORTH EPC and HAM projects."
Aggressive bidding by industry participants along with a sharp increase in input cost has dented the profitability of the road contractors in the recent quarters. If the input prices remain elevated, the profitability margins are expected to contract by 1-4% for FY2023.
The extended relaxations include monthly payments to contractors for EPC/HAM projects, continuation of performance security at 3%, and release of retention money will support liquidity. However, to ensure the quality of work being executed, all project executing agencies must see that in case of abnormally low bids, additional performance security is collected, as per guidelines prevailing before the pandemic.