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Additional Performance Security in Case of Abnormally Low Bid

The Ministry of Road Transport and Highways (MoRTH) issued a circular on February 29, 2024, bearing reference number NH-37015/01/2027-H (Comp. No. 208778), regarding the release of Additional Performance Security in EPC (Engineering, Procurement, and Construction) contracts. According to the circular, if Milestone-II, calculated in proportion to the Right of Way (RoW) handed over to the contractor, is achieved and there are no contractual disputes or legal proceedings, the Additional Performance Security in excess of 3% of the bid price will be released to the contractors. However, any outstanding recovery against the contractor will be adjusted when releasing the Additional Performance Security beyond the 3% limit, and the contractor will be notified.

 

This decision comes in response to the ongoing liquidity stress in the highways sector, which has led to delays or halts in existing projects due to funding shortages. The Ministry vide its previous circulars had already set a limit of 3% of the bid price for the Additional Performance Security in the standard RFP document for EPC contracts. In light of this, it would be fair and practical to extend this benefit to existing EPC contracts as well as this would help in alleviating the liquidity crunch and will ensure timely completion of projects.

 

In a previous circular dated November 17, 2020, MoRTH stated that bid documents for EPC contracts would not include provisions for Additional Performance Security in case of Abnormally Low Bids. It further specified that Additional Performance Security would only be implemented in compelling circumstances with the authority next higher to the authority competent to finalize the particular tender, or the Secretary of the Ministry/Department, whichever is lower.

 

However, in response to the challenges posed by the Covid-19 pandemic, MoRTH issued another circular dated May 18, 2022, granting a waiver of Additional Performance Security until March 31, 2023, for existing contracts. This waiver was allowed if a significant portion of the work, particularly the achievement of Project Milestone-II in proportion to the RoW handed over to the contractor, had been completed. The circular also revised the formula for calculating Additional Performance Security, setting a maximum limit of 3% of the bid price for the selected bidder. Implementing agencies were instructed to include this revised provision in the standard RFP document for EPC contracts.

 

On August 26, 2022, MoRTH reiterated the circular issued on May 18, 2022, permitting the waiver of Additional Performance Security in existing contracts until March 31, 2023, if the contractor achieved Project Milestone-II in proportion to the work handed over. Implementing agencies were once again urged to include the revised provision of Additional Performance Security in the standard RFP document for EPC contracts.