MoRTH Bidding Norms Overhaul: A New Era for Road Projects?

The Ministry of Road Transport & Highways (MoRTH) has introduced tighter bidding norms for Central Government road projects. Credit rating agency ICRA suggests that this change, involving additional performance security (APS) requirements, aims to mitigate competitive pressures previously caused by relaxed norms that led to projects awarded at deep discounts.

However, the revision could pose financial challenges for small and mid-sized contractors with limited bank guarantee capacities. In August 2022, MoRTH imposed APS on significantly underbid projects, capping it at 3% of the total project cost. The recent circular removes this cap entirely, raising concerns about increased working capital needs and potential impacts on bidding capacity and financial metrics.

ICRA's Ashish Modani notes the policy's short-term strain but highlights its potential to promote serious, well-capitalized bidding, enhancing road construction quality. The revamped APS norms, effective from April 2025, introduce a refined threshold, applying to bids under 10% below estimated costs, contrasting with the previous 20% benchmark. The calculation moves from a standard 20% of the estimate-bid difference to a two-tier system: bids under 10% deviation see a 0.1% APS per 1% deviation; those exceeding 20% discount have a 0.2% APS plus a flat 1%, calculated on the bid price. This approach removes the prior 3% APS cap, aligning with ICRA's perspective on improved project performance security.

(With inputs from agencies.)