Rating agency Icra anticipates that the Ministry of Road Transport & Highways (MoRTH) will tighten bidding norms by introducing a requirement for additional performance security (APS), aiming to reduce competitive pressure in Central Government road projects.

Earlier, the relaxed bidding guidelines had led to fierce competition in central government road tenders, with many contracts awarded at steep discounts—around a median of 25 per cent between January 2024 and March 2025. However, the new policy could place financial stress on small and mid-sized contractors, especially those with limited bank guarantee (BG) capacities.

Back in August 2022, the Ministry had mandated APS for projects awarded at significantly lower than the base price, but this was capped at 3 per cent of the total project cost. According to the latest circular, this 3 per cent cap has now been removed.

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."

Modani further explained that the need for cash margins to secure additional BGs will increase working capital demands, which may affect bidding capacity, revenue growth, and coverage ratios due to higher financing costs. However, he noted that in the medium term, the policy will encourage participation from serious, well-capitalised bidders, leading to improved performance and better quality in road construction.

News source: Business World