The Ministry of Road Transport and Highways has extended the cost escalation compensation mechanism for bitumen and diesel used in national highway projects by three months until 31 December 2026. The measure is intended to provide additional relief to contractors facing elevated input costs linked to the West Asia crisis.

The extension will apply from 1 October to 31 December 2026 and covers projects executed under the engineering, procurement and construction (EPC) model, the hybrid annuity model (HAM) and performance-based maintenance contracts. The ministry said the decision followed a continued increase in bitumen prices and the difference between retail and bulk diesel rates.

The mechanism is designed to cushion contractors and concessionaires against higher operating costs while supporting the pace of highway construction and maintenance. It will cover eligible work carried out between 15 April and 31 December 2026, provided the project’s bid due date was before 1 April 2026.

The extension builds on measures introduced in April to mitigate the effect of rising fuel, construction material and logistics costs on national highway projects. Those measures included revisions to certain price-adjustment provisions and more frequent payments to contractors, with the aim of improving cash flows and reducing financial pressure caused by volatile input prices.

For EPC projects, price adjustments can be released alongside monthly payments. Under HAM contracts, escalation calculated using the Price Index Multiple can also be paid monthly. Diesel is a key operating expense for construction equipment and material movement, while bitumen is essential for road surfacing. Sustained increases in both inputs can raise project costs and pressure contractors working under fixed-price or previously negotiated bids. The latest extension gives contractors additional time to manage cost volatility as India expands its national highway network.