The recent relaxations by the government by increasing participation from a larger set of bidders are likely to intensify competition in highways, roads, bridges and tunnelling projects, as they enable mid-sized firms to participate in the bidding process. As the eligibility of multiple construction contractors has been hindered by the global pandemic, these relaxations will provide the much-needed relief.
As a part of the relaxations provided, the government has slashed the minimum net worth criteria limit to 15 per cent from 25 per cent of the projected engineering, procurement, construction (EPC) project value in the preceding financial year for bidders of national highway projects. The definition of core sector has been expanded to include the construction of hotels, warehouses, stadiums, oil and gas, hospitals, smart cities, silos, and commercial set-up works.
Some of the measures for mid-sized construction companies include relaxation of technical eligibility criteria for tunnelling, bridge works; extension of concessions for all road projects; and relaxation of eligibility criteria for road EPC projects.
The reform may also help with bank credit, which has been shrinking for the sector since even before the onset of the pandemic. After the coronavirus pandemic severely affected the liquidity of infrastructure developers, the government has decreased the amount of performance guarantee for all construction contracts to 3% of the value of the respective contracts, from the extant levels of 5 to 10 per cent. This reduction is valid for all existing contracts and will continue to remain so for all contracts awarded until the end of next year. It has been implemented to ease liquidity concerns and ensure timely execution of projects.