Morth Circular regarding Amendment to Epc Model Agreement Document

MORTH Circular Regarding Amendment to EPC Model Agreement Document: A Brief Guide

The Ministry of Road Transport and Highways (MORTH) has recently issued a circular regarding the amendment to the Engineering, Procurement, and Construction (EPC) model agreement document. The circular, which was released on 28th June 2021, seeks to incorporate certain revisions and clarifications to the existing agreement document to ensure greater clarity and transparency in the EPC tendering process.

In this article, we will provide a brief guide to the changes introduced by the circular and their implications for contractors and project owners.

Key Changes Introduced by the MORTH Circular

1. Clarification on Performance Security

One of the major revisions introduced by the circular pertains to the performance security deposit requirement for contractors. The circular stipulates that in case there is a shortfall in the performance security deposit, the contract value will be reduced proportionally. This means that contractors will be required to provide a performance security deposit equal to 5% of the contract value, and any shortfall will result in a corresponding reduction in the contract value.

2. Revised Guidelines for Mobilization Advance

The circular also clarifies the guidelines for mobilization advance payment to contractors. As per the revised guidelines, contractors are entitled to receive mobilization advance payment amounting to 10% of the contract value. However, this advance payment will be subject to a limit of Rs. 15 crores. In case the contract value exceeds Rs. 150 crores, the mobilization advance will be restricted to 10% of the first Rs. 150 crores only.

3. Increase in Contract Value Threshold

The MORTH circular also introduces a significant change in the contract value threshold for EPC works. As per the revised guidelines, EPC works with a contract value of more than Rs. 100 crores will be governed by a separate set of guidelines, as opposed to the current threshold of Rs. 50 crores.

Implications of the Changes for Contractors and Project Owners

The amendments introduced by the MORTH circular are likely to have a significant impact on contractors and project owners. Here are some key implications of the changes:

1. Increased Clarity and Transparency

The revisions introduced by the circular are aimed at improving the clarity and transparency of the EPC tendering process. By providing clear guidelines for performance security, mobilization advance, and contract value threshold, the circular seeks to minimize confusion and ambiguity for contractors and project owners.

2. Greater Financial Discipline

The revised guidelines for performance security and mobilization advance are likely to promote greater financial discipline among contractors. By aligning performance security deposits with the contract value, the circular seeks to ensure that contractors have adequate financial resources to complete the project successfully. Similarly, the revised guidelines for mobilization advance are intended to ensure that contractors do not misuse the advance payment funds and use them for their intended purpose only.

3. Enhanced Competition

The increase in the contract value threshold for EPC works is likely to promote greater competition among contractors. With a higher threshold, more contractors will be eligible to bid for EPC works, leading to greater competition and potentially, better quality and cost-effective projects.

Conclusion

The MORTH circular regarding the amendment to the EPC model agreement document is a welcome move towards improving the transparency and clarity of the EPC tendering process. The revised guidelines for performance security, mobilization advance, and contract value threshold are expected to promote greater financial discipline, enhanced competition, and ultimately, better quality and cost-effective projects. As a contractor or project owner, it is essential to be aware of these changes and ensure compliance with the revised guidelines.