Implementation Impediments

Analysis of delayed bids in the road sector

COVID-19 has had a severe impact on the Indian road sector. Even as several highway developers have resumed work, disrupted supplies of key inputs such as steel, cement and bitumen continue to hamper construction work. Besides, construction companies have been hit by a rise in input costs on account of the lockdown. Apart from supplies of steel and cement, highway developers are also facing labour shortages as a large number of migrant workers returned to their native places after the lockdown was announced. This, in turn, will affect the working capital cycle of construction companies. According to several industry estimates, labour costs for skilled workers are expected to rise by 20-25 per cent, while that for semi-skilled and unskilled workers is pegged to increase by 10-15 per cent. Due to delays in the construction period owing to the lockdown, there will be additional interest costs on working capital loans taken, and this will be borne by the developers or contractors depending upon the risk sharing mechanism. Meanwhile, private concessionaires have also been significantly impacted by the decline in traffic during the lockdown.

The damage caused to highway developers on account of sluggish toll collection, labour/material shortages and escalation of project costs in the current scenario is expected to diminish the possibility of an earnings revival in the sector, which in turn will limit their scope to bid for new projects. The halt in the movement of construction equipment and labour due to the lockdown will impact the execution of awarded and ongoing projects, affecting the earnings of contractors/developers and their ability to borrow.

In order to substantiate the claim that delays will be common in road projects, India Infrastructure Research tracked 59 projects being implemented by the National Highways Authority of India for which bid due dates have been extended as a result of the lockdown. The average bid extension has been calculated based on the most recent due date extensions. These statistics give a broad idea of the average delay in project execution bids on account of the lockdown. However, the average delay may be far more since bid deadlines are being extended repeatedly. As per the analysis, the maximum delay in bids has been recorded at about 2.7 months, while the minimum delay has been recorded at about 26 days. On average, projects at the bidding stage have recorded a delay of approximately 1.7 months, that is, 51-52 days.

Summing up

With the completion of under-construction road projects across the country taking longer than expected, projects at the announced and bidding stages are expected to be hit the hardest as the government and construction companies will focus on completing ongoing projects on a priority basis. However, the exact extent of the impact will be visible only once market uncertainties lessen and the construction sector is on the road to revival.

 

 

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