Proposed move to increase the bonus for before-time completion of road projects will boost productivity .
The proposed move to double the bonus for before-time completion of highway development projects is a good one. As per Business Standard, the government is considering incentivising contractors in this manner as it intends to bring down the construction time for a highway project with length upto 100 km to 24 months from the current 36 months. Faster execution of projects will mean productivity gains from infrastructure development can be reaped earlier than projected. For the private sector partners, this means revenue generation kicking off earlier than expected. Given that time over-runs usually translate into substantial cost over-runs before-time completion seems like a win-win for all stakeholders. However, given how project delays result because of problems in land acquisition and issues in granting of green clearances as much as it does on the performance of the concessionaire, a lot rests with the government.
Given faster completion will be easier for larger concessionaires, it is likely that the move favours them more over smaller contractors. The government, therefore, must either bring down the lengths served up for contracts, with a rational attendant deadline, or offer larger players incentives to include smaller players in their work. As per data from the ministry of statistics and programme implementation, in April-June 2016 (the latest publicly available data is till this period), of the 71 mega road projects (>Rs 1,000 crore), three faced both time (ranging between 13-61 months) and cost (of 52.7% collectively) over-runs. The total original cost of the 71 projects was Rs 1.07 lakh crore, and the anticipated completion cost was Rs 1.09 lakh crore—a cost overrun of 1.6%. If the government truly wants to avoid that going forward, it must move forward with the bonus and look at clearing the hurdles its policies put up.