Bidders for the engineering, procurement and construction contracts for the five projects that were awarded on the north-south corridor of the express highway project have quoted rates lower than the estimated costs. Sources said the lowest bids quoted were at least 10 to 20 per cent lower than the estimates made by the National Highway Authority of India.
The projects on the north-south corridor were awarded to Oriental Structural Engineers, Bhageeratha Engineers, Birla GTME and Punj Lloyd.
Sources said the low bids were partly due to a fall in the cost of materials. For instance, oil companies lowered the price of bitumen by Rs 2,000 per tonne last year. At present, the price is Rs 8,750 per tonne. Bitumen prices were low also because it comes under the open general licence (OGL). Bitumen is a refinery by-product and its price is, therefore, closely related to movements in the price of the basis feed stock, crude oil. A fall in crude oil prices has an impact on bitumen prices.
In addition, contractors were also quoting lower rates on account of cost recovery on the equipment. EPC contractors bidding for projects have already recovered some of the fixed costs on their equipment from other projects. Therefore, in subsequent projects, rates quoted by contractors covered only the operational costs of equipment. The equipment used in road building includes crushers, vibratory rollers and mixing plants. However, this is a departure from normal practice where the
lowest bidder normally indicates rates which are above the estimated costs.
Such low bid quotations also indicate the recessionary conditions in the economy. Contractors are prepared to operate at low margins or margins sufficient to cover operating costs. This is especially true for a situation where equipment and manpower is under-utilised.
The decrease in costs was also on account of the conventional pattern of preparing estimates. Estimates are normally prepared based on the cost of materials and equipment after factoring in
inflation.
As a result, estimates tend to be on the higher side. However, while preparing the costs for the projects on the north-south corridor, sources said they had factored in market prices of certain aggregates. The bidders, however, had factored in a subsequent fall in market prices of materials.
This is not the first time that contractors have bid lower rates. The Maharashtra state government's highway development enterprise_Maharashtra State Road Development Corporation_had also received bids which were far lower than the estimates.
NHAI had faced a similar situation when it had invited bids for the Moradabad bypass project. The lowest bidder, UP State Bridge Corporations, had quoted bids that were lower than the estimated Rs 85-crore cost.
