The Ministry of Road Transport and Highways is planning to extend the defect liability period for road contractors under engineering-procurement-construction (EPC) contracts from 5 years to 10 years, according to a senior government official. This move is aimed at improving the quality of road construction and reducing the maintenance cost for the government.
What is EPC contracts model?
Under the EPC model, the contractor is responsible for the design, engineering and construction of the road project, while the government funds the entire project. The contractor is also liable for any defects or damages that occur during the defect liability period, after which the maintenance responsibility shifts to the government.
Why extend defect liability period?
The official, who did not wish to be named, said that the ministry is consulting with experts and stakeholders on increasing the defect liability period to 10 years, as it wants to ensure that the contractors deliver high-quality roads that last longer and need less repair. The official added that this will also align the EPC model with other modes of road construction, such as hybrid annuity mode (HAM) and build-operate-transfer (BOT) mode, where the contractors have longer maintenance obligations.
How will it impact the industry?
The proposal has received mixed reactions from the industry. Some experts have welcomed it as a positive step to enhance the standards and safety of road infrastructure in India, while others have expressed concerns about the increased risks and costs for the contractors.
Jagannarayan Padmanabhan, senior director and global head of consulting at Crisil Market Intelligence and Analytics, said that extending the defect liability period will incentivise the contractors to focus on long-term quality rather than short-term gains. However, he also cautioned that this may expose them to unforeseen claims and disputes, especially in cases of natural calamities or accidents.
What are the other modes of road construction?
The ministry has awarded road projects totalling 25,713 km under the Bharatmala Pariyojana, mostly under the EPC mode. It is also planning to shift towards awarding larger projects under the BOT mode, where the contractors have to finance, build and operate the road projects for a concession period of 20-30 years.
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