The railway sector has undergone a significant transformation over the past few years, including the introduction of engineering, procurement and construction (EPC) contracts; public-private partnership (PPP) contracts and the rapid adoption of digital technologies. While these changes aim to streamline project execution, they come with their own set of challenges. At a recent India Infrastructure conference, industry experts presented their views on the railway sector’s progress, the impact of key initiatives, the challenges that remain unaddressed and ongoing digitalisation efforts…
What has been your experience with the railway sector so far? What have been some notable achievements of key projects?
Aniruddha Kumar
Kalpataru Projects International Limited (KPIL) having diversified into the railway sector in 2011, has been active there for about 13 years. The company has, so far, executed around 25 projects across various railway segments, including civil works, construction of bridges, track laying, electrification, and signalling and telecommunication (S&T). KPIL’s experience with the sector has been satisfactory and full of learnings. The company has successfully completed one EPC project, and is currently in the process of executing five more projects on EPC basis.
Veer Narayan
Tata Projects has been associated with the railway sector particularly through EPC contracts. The company is involved in the execution of seven projects under the dedicated freight corridor (DFC) initiative – the Khurja-Bhaupur section (three packages), the Khurja-Dadri and Pilkhani-Sahnewal sections in the Eastern DFC and two projects in the Western DFC: CTP-13 (Vadodara-Surat) and CTP-11 (Vaitarna-Jawaharlal Nehru Port Trust). All these projects (excluding CTP-11) are complete and have been handed over to Dedicated Freight Corridor Corporation of India Limited for operation. The CTP-11 project is at an advanced stage of progress and is targeted to be completed by May 2025.
Ashish Singh
KEC International is one of the leading EPC contractors in the railway sector. Currently, we are executing over 50 railway projects in the mainline segment, in the areas of multitracking, overhead electrification (25 kV and 2×25 kV OHE), and S&T systems (including KAVACH and automatic block signalling). We are delivering around 150 km of new track every year and have executed around 30,000 track km of railway electrification for Indian Railways. In addition, KEC is executing over 20 projects in the metro segment, covering areas such as power supply systems, electrification (both overhead and third rail systems), elevated viaducts and stations, depots and ballast-less tracks. Some notable projects include metro works in Patna, Chennai, Kochi, Delhi, Ahmedabad, Mumbai and the RRTS project. One of our notable achievements is the tunnel ventilation work executed in the Dharam-Qazigund section of Udhampur Srinagar Baramulla Rail Link project in Jammu & Kashmir.
Udai Veer Singh
Afcons Infrastructure has a significant footprint in the domestic railway sector, including metro projects, both elevated and underground. It has successfully completed landmark projects such as the construction of the Chenab Bridge. However, Afcons currently lacks experience in executing railway projects involving signalling and track work in the Indian market. Internationally, the company has completed an EPC project in Africa and is working on another one in Bangladesh. Afcons excels in underground metro work, particularly in tunnelling, where we have substantial expertise. However, we have faced challenges in executing elevated metro projects, owing to tight margins and increased competition.
What are the key challenges that remain unaddressed?
Aniruddha Kumar
One of the major issues encountered at the bidding stage is the lack of proper planning and clarity in the bidding documents issued by railway authorities. This results in ambiguity and challenges in understanding project requirements. Further, the qualification requirements for EPC projects have been structured in a way that allows even companies without prior experience in railway electrification or signalling to qualify.
The EPC contract documentation often stipulates that maximum payments are made towards the later stages of the project, while the initial execution requires substantial funding. This mismatch creates a financial strain on contractors. Besides, the mobilisation advance provided is subject to an interest rate equal to the Reserve Bank of India’s rate and an additional 5 per cent, which is higher than commercial bank rates, reducing its effectiveness as a financial support tool. Further, during the project execution, obtaining approvals from railway authorities can be a difficult task due to the rigid adherence to predefined conditions and reluctance to accept changes.
Veer Narayan
The experience with EPC contracts in the railway sector has been mixed. The transition from item rate contracts to EPC and now to public-private partnership contracts has introduced several challenges.
One significant issue is the slow pace of decision-making, which leads to project delays and inefficiency. In addition, unresolved issues in contract management often result in cash flow constraints due to poorly drafted agreements and unresolved changes in the scope of work. Ongoing disputes and arbitration have also led to significant delays. As for bidding in upcoming projects, Tata Projects has decided to finalise its ongoing contracts first. In addition, the smaller contract value of some recent projects and a slow dispute resolution process have discouraged further engagement. Tata Projects prefers to execute larger-value contracts (around Rs 30 million-Rs 40 million) over smaller ones (around Rs 7 million-Rs 9 million), as larger projects offer better financial viability and align with the company’s capabilities.
Meanwhile, in EPC contracts, there are instances where employers bypass their obligations, such as utility shifting, land transfer and other issues that should be addressed by them. This practice further complicates the execution process.
Ashish Singh
Given the scale and complexity of railway projects, especially modification and expansion efforts, several significant challenges arise that impact their successful execution.
In particular, in 2×25 OHE modification efforts, large-scale railway projects planned for highly utilised network/high density network routes are facing executional difficulties with respect to simultaneously supporting current operations and new modifications, due to the scarcity of traffic and power blocks. In addition to project delays, the executing agency faces challenges regarding blockage of retention money and commissioning related payments.
The diverse signalling practices among zonal railways leads to complications despite uniform contract terms.
Further, EPC projects are restricted by predetermined elements, limiting design flexibility. We face difficulties in passing the benefits back to the railways.
The railway sector presents huge opportunities as well as challenges for infrastructure companies in India. While there is significant potential in the railway sector, there are several hurdles as well, such as variations in regional execution and intense competition. The entry of inexperienced companies from other sectors, not aware of complex railway safety requirements, has led to issues such as contract terminations and project delays due to dilution of complex technical requirements.
Udai Veer Singh
One of the major issues is constraints in cash flow, which often impedes the progress of railway projects. Delays in payments are a major hurdle, leading to financial strain on executing agencies. Another critical challenge is the nature of EPC contracts in the domestic market. While these contracts are intended to provide flexibility and allow for value engineering, in reality, they are unable to do so. In many cases, project parameters such as alignment, land profile, type of bridges, foundation and superstructures are predetermined and inflexible. This rigidity undermines the intended benefits of EPC contracts, with the burden of responsibilities such as measurements and billing passed entirely to the contractor. Furthermore, the payment schedules under these contracts are structured in such a way that contractors receive little to no compensation until about 60 per cent of the project is completed. It is essential to advocate for a more balanced payment schedule that provides early financial support, moderates in the middle and rewards completion, ensuring that contractors are financially stable throughout the project’s life cycle.
Competing with other contractors and public sector undertakings (PSUs) is challenging. PSUs, which used to traditionally manage contracts, have now shifted to acting as contractors. But they often lack the necessary experience, which results in inefficiencies. Their government backing provides a safety net, reducing accountability compared to private contractors. Consequently, Afcons has scaled back its railway projects in recent years, shifting its focus to the metro segment and other sectors such as transmission.
Another significant challenge is the relaxed pre-qualification criteria, which allows companies from unrelated sectors to bid on railway tenders, leading to smaller tender sizes, aggressive pricing strategies and intense competition. It is suggested that if the Railway Board aims to complete the massive Rs 11 trillion worth of projects within the next three to four years, there should be a mix of larger tenders, similar to the DFC model, to ensure timely and efficient completion.
What are your recommendations for improving project execution?
Aniruddha Kumar
The selection process for bidders should prioritise companies with relevant experience and proven capability in executing railway projects. This will ensure that only qualified and experienced contractors are awarded projects. Moreover, railway authorities should conduct thorough due diligence during the preparation of bidding documents. The scope of work should be clearly defined in the bidding documents to avoid misunderstandings and ensure that all parties have a shared understanding of project requirements. The availability of essential resources should be confirmed before inviting bids to avoid unrealistic project assumptions and complications.
Often, projects have unrealistic timelines, creating pressure for everyone. For example, projects that require 36 months to be completed are sometimes given a time frame of 18 months, and hence are frequently extended to 48 months due to the impractical time frames. Further, the arbitration process should be impartial. The current practice of appointing three retired railway officers as arbitrators should be reconsidered to ensure fairness and impartiality.
Veer Narayan
To mitigate the negative impact of disputes and delays, the decision-making process should be streamlined. Dispute resolution mechanisms should be efficient and decisions made by the Dispute Adjudication Board should be respected and promptly implemented.
To address cash flow issues, contract agreements should be better structured. Payment cost centres should be front-loaded to reflect the work completed, in order to prevent financial strain on contractors. Additionally, recoveries and penalties should be imposed in the form of bank guarantees rather than cash deductions. Contract agreements should be carefully drafted to ensure they are fair and balanced. Further, agreements that are structured in a way to release funds at later stages should be avoided and contractors should receive timely payments to maintain a healthy cash flow throughout the project duration. Ensuring timely payments and using bank guarantees for recoveries can help stabilise contractors’ financial health and improve project execution.
Ashish Singh
Timely completion of EPC projects while maintaining quality and safety is of paramount importance for the growth and modernisation of the railways. One key issue being faced by EPC contractors concerns the qualification criteria of EPC tenders. There is a need for stringent qualification criteria in EPC tenders, to ensure that the contractor is capable enough to not only execute but also prepare the complete design and manage the risks. Railway composite EPC projects need contractors with experience in railway civil, track, OHE and S&T works. Stringent criteria aligned with the scope of work will ensure safety, quality and timely execution of projects.
It is also crucial to avoid implementing the reverse auction process in bill of quantities tenders as bidders tend to reduce prices to unworkable levels. This jeopardises the quality of execution, ultimately resulting in unsatisfactory outcomes for the end clients.
Furthermore, subcontracting should be more tightly regulated, possibly by making joint ventures more binding, to ensure that the expertise required for technically demanding projects is maintained throughout execution. Further, it is recommended to address the billing break-up practices, which have been diluted over time, to ensure more accurate and fair financial management within the railway projects..
Udai Veer Singh
There are concerns about the current state of EPC tenders issued by the railways, as these often lack the flexibility associated with true EPC contracts. It is suggested that for more effective and economical project outcomes, EPC contracts should provide only essential requirements and allow contractors more freedom to design and submit proposals for approval. This approach could lead to better results and attract more competent players in the industry. Additionally, the choice between EPC and design-build contracts for complex projects depends on the structuring of stage payments in EPC contracts. It would be beneficial for EPC contracts if stage payments are well distributed; otherwise, design-build co tracts are preferable for their flexibility.
What are the emerging digitalisation and technology trends?
Veer Narayan
Tata Projects has deployed drones for effective project monitoring. These drones capture images of bridges or earthwork and transfer them digitally, providing real-time updates on project progress. Further, project management through building information modelling (BIM) and systems applications and products in data processing are utilised, with BIM being primarily used for client end-use monitoring purposes. The company has also deployed BIM5 for a few clients.
Ashish Singh
Digital technologies are being used to enhance safety in railway construction projects. For example, an in-house “lookout robot” has been designed to protect workers by generating warning signals for potential hazards on multi-tracking projects. At KEC, we are committed to improving and strengthening project engineering and execution practices to reduce costs and shorten delivery timescales. We have developed and deployed technological solutions such as connected internet of things for remote monitoring of equipment, and track and trace tools for workforce management at sites. Additionally, we are focusing on precast structures in civil works to reduce the construction time and digital enablement of processes, such as checklists for electrification works to improve quality.
Udai Veer Singh
Afcons has implemented digital technology to enhance safety at construction sites. Employees submit daily observations through an app, including photos and comments on both positive and negative incidents. These reports are sent to relevant personnel, who then take action and provide feedback, ensuring prompt resolution of safety issues.
