Road ministry to compensate for price hike and volatility in commodity prices to contractors

New Delhi: The ministry of road transport and highways have relaxed the payment mechanism for highway contractors and reduced the price adjustment mechanism from three months to one month to factor in the volatility in the prices of construction machinery, ordinary portland cement, mild steel, bitumen and other commodities used in the road infrastructure development in the country.

The provisions, aimed at cushioning the impact of the war in the middle-east on concessionaires, have been put in place for a three month period from April 1, 20206 to June 30, 2026 or till the global situation improves, a person aware of the development told ET.

According to sources, the ministry has enabled monthly payment to contractors and concessionaires for engineering, procurement and construction (EPC) projects as well as the hybrid annuity model (HAM) projects for work executed and complying with quality specifications and standards.



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This is expected to maintain a steady cash flow with the contractors who are reeling under the impact of high commodity prices and logistics cost due to the ongoing middle-east crisis.

Payment to a contractor under Schedule H of an EPC contract and Schedule G of HAM contracts is made on a milestone-based, stage-wise, or pro-rata basis for completed construction activities, rather than item-wise measurements.

Further, the ministry has allowed price adjustments under EPC contracts to be paid along with the monthly payments and price escalation in HAM contracts to be also paid along with monthly payments.

A senior government official said this cost escalation compensation mechanism for national highway projects will help address the challenges being faced by the developers due to the surge in price of fuel and construction material as well as an increase in logistics cost.

The highway developers foresee up to 10% increase in project cost on the back of 25-20% increase in bitumen and fuel prices and 15-18% jump in prices of electrical items.

While the government has assured the highway developers of adequate supply of bitumen for road construction, the price volatility and the supply is being regularly monitored at the highest level to avoid any kind of unavailability of commodities which could result in big-ticket projects getting stuck.

The National Highways Builders Federation had requested extension of time (EoT), relief from penalties, compensation for extraordinary cost escalation, and a uniform approach across EPC, hybrid annuity model (HAM), and built-operate-transfer (BOT) projects at its recent meeting with the National Highways Authority of India and the ministry of road transport and highways.