New Delhi [India], May 14 : The tightening of bidding norms by Ministry of Road Transport & Highways (MoRTH) through requirement of additional performance security (APS) will ease competitive pressure in Central Government Road projects, said credit rating agency ICRA.
Previously, the relaxed bidding norms had intensified competition in Central Government Road projects, with most construction projects being awarded at significant discounts - a median around 25 per cent between January 2024 and March 2025.
However, the policy may exert some strain on the credit profiles of small and mid-sized contractors, particularly those with modest bank guarantee (BG) limits, said the rating agency.
In August 2022, the Ministry had imposed APS for projects awarded substantially below the base price; however, the APS requirement was capped at 3 per cent of the overall project cost. As per the recent circular, the capping of 3 per cent has been removed.
Giving more insight, Ashish Modani, Group Head, Corporate Ratings, ICRA, said, "The hike in performance security requirement is a positive step towards execution discipline, which will deter speculative bidding and promote realistic pricing. The policy though, in the near term, is expected to put some strain on the credit profiles of small and mid-sized contractors, particularly those with limited-sized BG limits."
He said that the requirement for cash margins to secure additional BGs will increase working capital needs, potentially impacting bidding capacity, revenue growth, and coverage metrics due to higher finance costs.
However, on a medium term the policy eventually will encourage serious well-capitalised bidders for participation, to get desired output of performance in terms of quality of road construction, Modani added.
The MoRTH has introduced a revised framework for APS, aimed at deterring abnormally low bids in the national highway projects.
The revised Abnormally Low Bid Price (APS) norms introduced in April 2025 bring significant changes compared to the previous guidelines from August 2022.
The trigger threshold for APS has been tightened, now applying to bids that are lower than 10 per cent of the estimated project cost, compared to the earlier 20 per cent threshold.
The APS calculation has shifted from a flat 20 per cent of the difference between the estimated cost and the bid price to a more nuanced, two-tiered approach.
For bids less than 10 per cent below the estimated cost, a rate of 0.1 per cent is applied for every 1 per cent deviation. If the bid exceeds a 20 per cent discount, the APS rate increases to 0.2 per cent per 1 per cent deviation, plus a flat 1 per cent, all calculated on the bid price.
Additionally, the earlier cap of 3 per cent on APS has been removed, allowing the penalty to exceed this limit depending on the degree of underbidding.
As per the ICRA, the APS is to be rounded to the nearest 0.5 per cent and is now treated as part of the overall performance security requirement.
India has the second largest road network and its National Highways span a total length of 146,195 kilometres (km), forming the primary arterial network of the country. As per the official data at the end of 2024, national highway network grown by 60 per cent; rising from 91,287 km in 2014 to 146,195 km while national high-speed corridors increase from 93 km in 2014 to 2,474 km.
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