Tighter bidding norms by MoRTH to ease competitive pressure in Central Govt road projects: ICRA

ICRA projects the tightening of bidding norms by Ministry of Road Transport & Highways (MoRTH) through requirement of additional performance security (APS) to ease competitive pressure in Central Government road projects. 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% 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.

In August 2022, the Ministry had imposed APS for projects awarded substantially below the base price; however, the APS requirement was capped at 3% of the overall project cost. As per the recent circular, the capping of 3% 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. 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.”