The recently revised standard contract agreement for national highways Centrally-sponsored road works proposed to be implemented on EPC basis could lead to a decline in the pace of new project awards in the short to medium terms, with the pending land acquisition being a primary constraint, warns a report.
"While the pipeline of projects to be awarded remains strong with the Bharatmala Pariyojana gaining ground, the land acquisition issues could delay the awarding," rating agency Icra said in a weekend report.
The target for FY19 is to award 20,000 km projects with majority to be awarded on the EPC mode, it noted.
"Given the land acquisition related issues, and stringent provisions in the revised EPC contract agreement, it is likely that the NHAI will proceed with awarding of contracts only once the land acquisition is in advanced stage," it said.
However, it noted that the revision is expected to facilitate execution of road contracts by reducing bottlenecks faced by contractors particularly related to right of way, and clearances.
The report further says in case of delays due to default on the part of the contractor, provision of deemed debarment for bidding in new projects is expected to push pressure on contractors to timely complete projects.
"The changes in the EPC agreement are steps in positive direction. With the stricter provisions for damages, the liability has increased for both the authority and contractor to meet their obligations in a time-bound manner. This in turn is expected to facilitate timely execution.
"However, over the short-to-medium term, this could lead to a decline in the pace of new project awards, with the pending land acquisition being a primary constraint," said Abhishek Gupta, an assistant vice-president at the agency.
As per the revised terms, the authority has to provide at least 90 percent of the required right of way of the construction zone of the total length of the project highway, which shall be in contiguous stretches of not less than 5 km.
"By broadening the right of way requirement to 90 percent of the construction zone and 5-km contiguous stretch, the execution challenges are expected to be lower," he said.
With defined timelines for deemed termination, and associated provisions for damages, the agency expects the authority to proceed with contract awards only when these conditions are met."Similarly, with respect to the contractors obligations, non-achievement of project completion within 90 days of scheduled date will lead to deemed debarring of the contractor from bidding for future projects till this project achieves completion (for projects with contract value more than Rs 300 crore)," it said.