An inter-ministerial group headed by finance minister Pranab Mukherjee will on March 14 discuss a draft model contract on engineering, procurement and construction (EPC) projects for building national highways even though disagreement prevails between Planning Commission and prime road project awarding body NHAI on key provisions.
Planning Commission deputy chairman Montek Singh Ahluwalia met road minister CP Joshi early this week and convinced him to try the suggested provisions on payment of bonus to contractors for early completion of work and reduction in liability for defects on the constructed road for sometime to assess the impact. Ahluwalia’s adviser Gajendra Haldea had last year also suggested ceiling of qualified bidders to seven but his position has now weakened after NHAI failed to get requisite response in two projects put up for bidding in Uttar Pradesh incorporating the said provision.
The draft EPC contract suggests payment of 0.04% of total project cost as bonus for each day of early completion, subject to maximum of 5% of TPC. The document also says that contractor would have to submit 7.5% of total project cost with NHAI as as assurance of no defects and proper maintenance of the road. This amount could be retain only for two years from the date of road completion. At present, there is no arrangement for such payment and NHAI retains 15% of project cost as safeguard against defects and poor maintenance for five years.
“We agree there has to be a bonus to incentivise efficiency but how much should it be? It should not be something that would put finances under stress,” a senior official in NHAI told FE, hoping that expenditure department of finance ministry and internal finance department of road ministry would favour a lower rate.
The NHAI official said the authority is also against Planning Commission member (infrastructure) BK Chaturvedi supported the draft. “Gajendra has done a good job. The model document on EPC will help the sector,” he said.
Senior government officials said that before the inter-ministerial group meets in March, a committee of secretaries would meet under chairmanship of road secretary and NHAI chairman AK Upadhyay to discuss the draft-seventh in the series since the task of preparing the contract was taken up in 2009 to do away with current item-rate contracts for EPC. The government wants to award turnkey projects to develop national highway stretches totaling 20,000 km into two lanes.
The idea behind the shift from item-rate contracts to turnkey contracts is to reduce the incidence of corruption from EPC projects. In turnkey contracts, companies bid after considering all the costs involved in developing a stretch but in the case of item-rate contracts, bids are placed for each item used for constructing a road. The Planning Commission believes item-rate contracts give contractors a chance to escalate costs in collusion with road engineers.
