NHAI Permits Insurance Surety Bonds as Performance Security

In a significant step toward modernizing India’s infrastructure contracting landscape, the National Highways Authority of India (NHAI) has issued a new Policy Circular dated July 9, 2025 (Ref: 18.105/2025), permitting the use of Insurance Surety Bonds (ISBs) as valid Performance Security in consultancy contracts, including those for Authority Engineers (AEs) and Independent Engineers (IEs). This move builds upon a series of recent policy reforms that reflect the government’s intent to enhance liquidity, reduce reliance on traditional financial instruments, and facilitate ease of doing business across the infrastructure sector.

The Ministry of Road Transport and Highways (MoRTH), through its letter (Ref: NH-24028/14/2014), directed the acceptance of ISBs and electronic Bank Guarantees (e-BGs) as legitimate instruments for both Bid Security and Performance Security. This direction followed the amendments to the General Financial Rules (GFR), 2017, by the Department of Expenditure.

In response, NHAI issued a circular on June 13, 2023, updating standard bidding documents (RFPs and Concession Agreements) to allow ISBs and e-BGs in project execution contracts. This included Engineering Procurement Contracts (EPC), Hybrid Annuity Model (HAM), and Build-Operate-Transfer [BOT (Toll)] projects, thereby laying the groundwork for broader adoption.

The latest Policy Circular, dated July 9, 2025, supersedes the 2023 circular and expands the scope of ISBs to consultancy engagements, specifically for AEs and IEs. This extension signals a clear intent to integrate ISBs across all categories of contractual relationships under NHAI.

Additionally, MoRTH’s 2023 circular further clarified that contractors engaged in existing contracts spanning diverse infrastructure sectors such as road development, toll operations, and ropeway projects may opt to replace the originally stipulated Bank Guarantees (BGs) with ISBs, wherever such instruments are available. This flexibility enables stakeholders to transition to more accessible and less capital-intensive security mechanisms, even within the framework of ongoing contractual obligations.

Key Provisions of the July 2025 Circular:

1. The revised policy is effective immediately, requiring all contract clauses related to performance security in consultancy contracts to be amended without delay.
2. To streamline adoption, Annexure-A and Annexure-B of the circular provide model ISB formats tailored for AE and IE contracts. These templates are designed to guide both field units and consultants, ensuring procedural consistency across projects.

With this circular, NHAI reinforces the government’s broader fiscal and procurement reforms under the GFR, 2017, reflecting a shift toward more agile and market-aligned financial instruments.