National Highway Developers Seek Procurement Reform

National highway concessionaires and contractors have urged the government to introduce predefined “star rates” (benchmark rates) for key construction inputs, particularly bitumen and petroleum, oil and lubricants (POL), for national highway projects that are currently under active bidding. The proposal seeks to address pricing disparities arising from fluctuations in commodity prices during the procurement process.

The current highway procurement lifecycle suffers from deep pricing mismatches. Contractors argue that the lag between initial project cost estimation by authorities and the actual date of financial bid submission exposes them to intense price fluctuations in critical inputs like bitumen and petroleum, oil, and lubricants (POL).

In the absence of a common pricing benchmark, bidders are compelled to factor in contingencies to hedge against future price volatility, resulting in inflated bid prices, reduced price competitiveness and increased execution risks where actual market prices differ substantially from assumptions made at the bidding stage.

To address these concerns, the industry has proposed that the government notify predefined benchmark (“star”) rates for specified construction inputs for all projects under active bid evaluation. Such benchmark rates would serve as common reference prices for all bidders, ensuring greater consistency, transparency and comparability in the preparation of financial bids.

From a project finance and public procurement perspective, the proposal seeks to introduce a more balanced allocation of commodity price risk during the bidding stage. If adopted, the framework could reduce uncertainty arising from volatile input costs, minimise post-award disputes relating to cost escalation, improve project bankability and facilitate timely execution of highway projects under the public-private partnership (PPP) model. The proposal also aligns with the government’s broader objective of accelerating highway infrastructure development while encouraging greater private sector participation. However, the government is yet to take a decision on this.