India's Highway Bid Crackdown Hits Contractors With 21% Security Demands

The security will be locked for years. Twenty-five percent releases after the Commercial Operation Date, assuming on-time completion. Another 25% comes a year later if pavement quality and riding standards pass inspection. The remaining 50% waits until the defect liability period ends. The ministry also proposed penalties for substandard pavement quality found during independent inspections.

Kushal Kumar Singh, a partner at Deloitte India, said similar provisions already exist in some HAM contracts. Extending them across all contracting formats should bring more discipline to highway bidding, he said. The move will also push lenders and credit rating agencies to scrutinise project viability and contractor risk more closely, Singh added.

ICRA's Suprio Banerjee said the proposal should discourage irrational pricing and reduce execution gaps caused by financially stretched contractors. He cautioned that higher bank guarantee requirements could initially raise financing costs for smaller companies. Over time, the rules should encourage participation by stronger, better-capitalised players, Banerjee said.

Sanjay Kumar Sinha, founder and managing director of Chaitanya Projects Consultancy, said excessively low bids have frequently led to financial stress, delays, contractual disputes and compromised project quality. Requiring higher performance guarantees strikes a balance between preserving competition and ensuring projects go to contractors with the financial capacity to finish them, he argued.

The proposal marks a shift from awarding projects to the lowest bidder at any cost toward prioritising financially sustainable bids. Smaller contractors will face the biggest squeeze on working capital and bank guarantee costs. Larger, better-capitalised companies are expected to adapt more easily.

MoRTH has not set a timeline for finalising the rules. The draft is open for stakeholder comments.