NHAI Issues Circular Refining Contractual Safeguards

The National Highways Authority of India (NHAI) has introduced a series of amendments refining key financial and contractual safeguards within the standard bidding documents affecting bid securities, additional performance security requirements, dispute resolution mechanisms, and the operational acceptance of insurance surety bonds vide Policy Circular bearing reference no. 11.84/2026 dated February 13, 2026 (the “Circular”). While procedural in appearance, these amendments carry broader legal, commercial, and risk-allocation implications across a wide spectrum of NHAI-sanctioned works, including Operation & Maintenance (O&M) contracts, non-regular civil works, Engineering Procurement and Construction (EPC) projects, and black spot rectification works.

Viewed collectively, the Circular reflects NHAI’s continuing effort to refine contractual safeguards and align bidding frameworks with evolving market practices, particularly in the context of aggressive bidding patterns, financial risk mitigation, and institutional dispute management.

Insurance Surety Bonds: Formal Mainstreaming

1. One of the most notable aspects of the amendments is the introduction of a new instrument, i.e., Insurance Surety Bonds (ISBs), as an acceptable instrument for the submission of bid security and performance security.
2. Traditionally, contractors/concessionaires used to submit only the bank guarantees towards bid security/performance security. The introduction of ISB as bid security/performance security will facilitate the prospective bidder(s) to opt for either of the instruments.
3. ISBs must now be:
   1. Issued exclusively by IRDAI-authorised insurers.
   2. Verified through designated digital portals.
   3. Structured as unconditional and irrevocable instruments.
4. Simultaneously, bank guarantees are required to comply with SFMS transmission protocols, reinforcing system-level authentication safeguards. A particularly important refinement is the express prohibition of third-party securities.

Additional Performance Security: Revised Risk Calibration

1. The Circular introduces a refined framework governing Additional Performance Security (APS) for low-quoted bids. The revised framework provides:
   1. Where the bid price is lower than 15% but up to 25% of the estimated cost, APS is calculated at 50% of the differential.
   2. Where the bid price is lower than 25% of the estimated cost, APS comprises 5% of the estimated cost + 100% of the differential.
2. Crucially, APS is treated as a part of performance security, ensuring consolidated enforceability rather than fragmented recovery rights. The Circular also prescribes that the third-party-backed performance security, or APS, shall not be accepted.

Bid Security and Debarment: Reinforced Compliance Signals

1. The amended clauses governing bid security introduce sharper compliance consequences. Failure to furnish acceptable bid security renders bids non-responsive. The forfeiture regime, though familiar in structure, now operates with enhanced consequences. Withdrawal of bids, refusal of price corrections, or failure to furnish performance securities triggers forfeiture exposure accompanied by potential debarment.

Dispute Resolution Mechanism: Structured Institutionalization

1. The Circular also reshapes the Dispute Resolution Mechanism (DRM). Disputes below Rs. 10 crores are now directed towards institutional arbitration forums such as SAROD or the India International Arbitration Centre (IIAC). Disputes above Rs. 10 crores, if unresolved through the DRM specified in the agreements, will be referred to conciliation under the Arbitration and Conciliation Act, 1996, and prospectively mediation upon notification of conciliation under the Mediation Act, 2023.
2. This refinement reflects NHAI’s continuing preference for institutionalized dispute resolution frameworks over ad hoc arbitration models.
3. Distinct from the above common amendments, the circular introduces a document-specific modification for EPC works approved at the NHAI level. The base performance security requirement is recalibrated to 3% of the bid price. This represents a notable shift in the financial security philosophy, balancing reduced upfront contractor burden with the newly introduced APS safeguards.

The amendments refine the balance between competitive bidding flexibility, financial risk containment, and procedural efficiency. By mainstreaming insurance-backed securities, strengthening safeguards against unsustainable discounting, and institutionalizing dispute resolution pathways, NHAI has reinforced predictability across both bidding and contract administration stages.