Road to Reform: Unpacking the New APS Measures

CareEdge commends the government's move to increase APS for road projects, yet warns that the adjustments might not fully address issues in bidding processes. The report suggests that the broader success of reforms depends on coordinated efforts and strict implementation, highlighting challenges persist in the road construction sector.

The government's recent move to tighten Additional Performance Security (APS) requirements for aggressively bid road projects has been praised as a constructive step by CareEdge. However, the rating agency cautions that these measures might not fully rectify irregularities in the bidding process.

According to Maulesh Desai, Director at CareEdge Ratings, removing the cap on APS requirement addresses a significant loophole, yet on its own, may not be enough to tackle intense competition in the sector. Ample non-fund based bank lines and the release of performance securities based on project progress weaken the deterrence efforts, he notes.

Further complicating matters is the need for strategic timings in project approvals, which CareEdge highlights as critical for avoiding delays and cost overruns. Setu Gajjar, Assistant Director at CareEdge, stresses that these reforms' success hinges on the timely coordination and enforcement by all stakeholders involved.

(With inputs from agencies.)