Norms relaxed for working capital needs of road builders

01 Nov 2019 CW Team

The Ministry of Road Transport and Highways (MoRTH) has reportedly decided to relax norms to release partial payment or a working capital advance to road and highway builders for the work they have carried out, even if the builder has failed to achieve the construction milestone set by the authorities. The move is aimed at improving the liquidity of builders and to help complete projects stuck due to a funding crunch.

As reported, the provision for the advance will be extended to all highway projects executed with 100 per cent government funding or EPC (Engineering, Procurement, Construction) contracts as well as for projects under the Hybrid Annuity Model (HAM) mode. For contracts under the EPC model, the government releases the entire payment as and when a builder achieves the project milestones during construction. In the case of projects under the HAM mode, government agencies pay only 40 per cent of the cost during construction in five equal instalments. The remaining amount is released in 30 biannual instalments, which commences six months after the project is completed. As per a circular released by MoRTH on the norms relaxed, contractors availing this advance payment will have to pay the interest when the final payment is released, once the set milestone is achieved. For instance, NHAI or any other road owning agency can give the interest bearing working capital advance to the road builder even if it has completed only 5 km of a highway stretch against the set milestone of 10 km for release of payment.

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