NHAI cracks down on subcontracting in highway projects

The National Highways Authority of India (NHAI) has tightened bidding norms for highway projects in order to curb subcontracting by concessionaires, including by imposing penalties.

The changes have been notified through a policy circular on qualification criteria for engineering, procurement and construction (EPC) projects issued in August.

According to the modifications, any unauthorised subcontracting, and subcontracting beyond permissible limits, would be classified as an undesirable practice where the NHAI is entitled to forfeit and appropriate the bid security and performance security provided by bidders.

In a press statement, the NHAI said such malpractices amounted to the breach of contractual provisions, and also undermined quality assurance, disrupted project timelines, and weakened regulatory oversight.

The NHAI has also prohibited submission of security amounts that are sourced from third parties instead of the concessionaire itself.

A key clarification concerns the “similar work” criterion in bid qualification, which contractors have often misrepresented by citing minor activities, including earthworks, to claim eligibility for large highway projects. The NHAI has now specified that “similar work” will apply only to completed highway projects that include all major components comparable to those required in the project under bidding.

“Execution of work, which does not include all major components, shall not be considered as completion of similar work,” the circular states. Additionally, in order to claim experience for similar completed work, the bidder will have to submit the experience certificate in a prescribed format, apart from a certificate from the statutory auditor or client.

“These measures will facilitate delivering better infrastructure quality, timely completion of projects, and optimal use of public resources — thereby contributing to the development of more efficient National Highway network,” the NHAI has said in a press statement.

Subcontracting of highway development works was also among the issues flagged by the Parliamentary Accounts Committee (PAC) chaired by Congress MP K.C. Venugopal.

“Unchecked layering of contractors and subcontractors, particularly in EPC, BOT (Build-Operate-Transfer), and HAM (Hybrid Annuity Model) projects, has led to diffusion of accountability, where the authority has limited leverage to enforce quality standards or timely delivery,” the PAC had said. The main concessionaires often pass on the work to subcontractors at a lower cost, thereby making a profit without executing any work or responsibility, which results in delays, lower quality, and weak accountability, the panel said.