Move to increase accountability in EPC contracts

With long-running delays in road projects significant mark-up costs and with many road contractors defaulting on quality...

With long-running delays in road projects significant mark-up costs and with many road contractors defaulting on quality and output parameters, the Committee of Infrastructure (CoI) has finally stepped in to make such contractors more accountable. The Planning Commission, acting as secretariat to CoI, has proposed to draft a model Engineering-Procurement-Construction (EPC) contract for high-value highway projects and has sought consultants to design the framework. An EPC contract is one where the government appoints a contractor to construct a road and return it to public ownership.

“This system helps the government to avoid risks from increase of costs arising from inflation, changes in bill of quantities during construction, compensation events due to delays and arbitration claims on myriad issues. The contractor accepts all these risks, and bids a lump sum amount for the entire work, with inflation proofing in specific situations,” says the Request for Proposal (RFP) document.

While the government has put in place a model concession agreement (MCA) for national highway projects to be implemented on a Build-Operate-Transfer (BOT) basis, it has so far failed to establish any regulatory framework for EPC contracts.

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The new EPC contract guidelines aim to increase the accountability of contractors by making them responsible for not only building roads, but also maintaining them for a fixed number of years. In doing so, the new model would do away with the existing system of awarding separate yearly road repair contracts.

The new model also seeks to replace the payments for the contractor’s ‘inputs’ by payments for ‘outputs.’ This is aimed at eliminating the practice of contractors claiming higher-than-necessary input costs to make more profits. “(The new model contract)It reduces or suspends payments for any given month if the service level is not achieved,” notes the RFP document.

While the government has currently called bids for creation of the model EPC contract, it expects to appoint a consultant by the end of next month. The model EPC contract is expected to be ready within four months of award of the contract.

Draft Features

•Focus on road asset creation and maintenance by same contractor

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•Does away with existing system of separate yearly road repair contracts

•Replaces the payments for contractor’s inputs by payments for outputs

•Makes contractor responsible for the design and quality of the road

•Performance based periodic payments to maintain roads

•Reduces or suspends payments if service level not achieved.

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