Daijiworld Media Network: New Delhi (DD)

New Delhi, May 28: While the government's decision to tighten Additional Performance Security (APS) norms for aggressively bid road projects is a step in the right direction, it may not be enough to rein in unsustainable bidding behaviour, warns a report by credit rating agency CareEdge Ratings.

The new policy, introduced by the Ministry of Road Transport and Highways (MoRTH), removes the cap on APS requirements — a move aimed at discouraging unrealistic bids and ensuring better project execution. But according to CareEdge, the tightening of APS norms alone cannot fully address the persistent challenges in the sector.

“The increase in APS for aggressively bid projects is a constructive step towards promoting more responsible bidding,” said Maulesh Desai, Director at CareEdge Ratings.

“Removing the cap addresses a major loophole in concession agreements. However, without additional checks, intense competition and strategic underbidding may still persist.”

The report highlights several systemic issues that continue to undermine the effectiveness of APS:

• Easy access to non-fund-based bank guarantees by sponsors with strong financial backing.

• Lower project awarding activity, which intensifies the race to win bids.

• Release of performance security linked to project progress, rather than the actual quality of construction, weakening the intended deterrent effect.

“These factors are effectively diluting the intended impact of APS in curbing bidding aggression in NH-HAM (Hybrid Annuity Model) projects,” Desai added.

In its evaluation, CareEdge also commended MoRTH for syncing project approvals and appointed dates with land and statutory clearances — a move seen as critical in reducing execution delays and cost overruns.

However, the report cautioned that execution is key. The success of such reforms hinges on timely coordination among central and state agencies, contractors, lenders, and other stakeholders.

“The success of these measures will depend heavily on coordinated efforts and effective enforcement of contractual terms on the ground,” noted Setu Gajjar, Assistant Director at CareEdge Ratings.

As India pushes forward with its ambitious road infrastructure expansion, experts suggest a multi-pronged approach — combining financial safeguards like APS with transparent prequalification processes, stricter project monitoring, and better quality control — is essential to ensure long-term sectoral health and accountability.