Soon, a road construction contractor would be held liable for any defect that happens to his work within five years of its completion, going by a proposed addition to the norms regarding the defect liability period for EPC (engineering, procurement and contract) projects.
According to a senior official in the road transport and highways ministry, the government would be finalising in a week the clause relating to defect liability. “The pertinent period may be set at five years — and not one year. For, one year is too early a time for a project to develop a defect,” he told Business Standard.
“The consultation process is still on. The decision is likely to be taken in a weeks’ time.” The government plans to award road projects on EPC basis. Therefore, a model concession agreement had to be finalised soon.
Already, the National Council of Applied Economic Research has submitted a draft model to the road ministry. This has not moved for requisite approvals, even after numerous meetings and exchange of letters between the road transport ministry and the Planning Commission. Reason: A matter of contention has cropped up between the two government departments over the issue of the defect liability period. If the road transport ministry wants a longer defect liability period (of at least five years), the Planning Commission does not want it to span beyond one year.
The ministry’s argument is this: Shorter defect liability period will lead to construction of sub-standard roads. The Planning Commission counters it by saying that the road development agencies should ensure that the construction is not sub-standard.
As for the industry, it feels that a five-year defect liability period is “too much” and this will lead to an increase in the project cost. “It should neither be five years nor one year,” says an executive of an infrastructure company that builds roads on EPC. “Both the official proposals have their own problems. The government should keep it at two — or, maximum, three years. Five years would lead to an increase in the project cost by 15 per cent.”
Till now, the government has not built any project on the EPC; they were all on item-rate contract. In the existing item-rate model, a contractor builds the road and the government makes the payment. It is the government that pays any change in the design and input cost. The current model does not mandate the contractor to maintain the road. This will change in the new EPC model, where the project cost will be fixed and time-bound.
In the past couple of years, National Highways Authority of India has not awarded any project on EPC. It has awarded projects on BOT (toll) and BOT (annuity).
In BOT (toll), the developer builds the road and recovers investment through toll collection for a period of time. In annuity, the developer builds the roads and the government pays it in instalments.
A number of government committees, too, have favoured award of contracts on EPC model. It is this response that prompted the government to have an MCA for EPC projects.
