NHAI Granted Undue Benefits To Road Contractors In Maharashtra, Says CAG Report

New Delhi: According to Comptroller and Auditor General (CAG)’s findings, the road contractors in Maharashtra received “undue benefits” totalling Rs. 203 crore through reduced penalties charged by the National Highways Authority of India (NHAI). The highways authority deviated from the original Concession Agreements in projects in Nanded and Thane districts, which posed lower damage retrieval than it mentioned in the contracts, Indian Express reports citing CAG findings.

The findings are part of its “Compliance Audit Report (Commercial) for the year ended March 31, 2022 – Union Government.” The country’s top auditor submitted the report to the Lok Sabha on December 16 and denoted that NHAI’s actions violated Central Vigilance Commission (CVC) guidelines.

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As per the report, NHAI granted four national highway widening projects in Maharashtra under the Hybrid Annuity Mode (HAM), amounting Rs 4,104.70 crore, in March 2018. The projects are the Ausa-Chakur, Chakur-Loha, Loha-Waranga stretches of NH 361, and the Vadape-Thane stretch of NH 3 (new NH 848). Among the four, three projects were managed by NHAI’s Project Implementation Unit (PIU) in Nanded, and the Vadape-Thane project was handled by the PIU in Thane. In order to accomplish four projects, the selected bidders formed four concessionaire or contractor companies and they signed Concession Agreements with highway authority on July 4, 2018.

However, by the time when initial 20 per cent of the work need to be completed, the contractors made no progress. Consequently, the NHAI’s Project Directors recommended termination of the agreements due to contractor default in July 2020. In June 2020, the Consortium’s lead member requested highway authority to change ownership of the projects under a clause in the Concession Agreements and it gave initial approval for the substitution in September 2020 and January 2021.

During this substitution process, NHAI made a significant policy shift, the CAG states. Originally, NHAI’s “in-principle” approvals required the old contractors to pay a penalty of 1 per cent of the bid project cost before final approval for ownership transfer but in the last stage, highway authority amended this requirement by adding a clause. As per this clause in the Endorsement Agreements it allowed penalties to be recovered from future milestone payments made to the new contractors through deductions from their construction bills, Indian Express reports.

“In this regard, Audit observed that the damages actually imposed (Rs 49.24 crore) by NHAI were significantly lesser than the damages recoverable as per the contractual provisions of the Concession Agreements. Damages according to the Concession Agreements were Rs 252.31 crore till NHAI’s ‘in-principle’ approval for the substitution in September 2020/January 2021,” Indian Express reports, as said in the CAG findings.

Continuing further, the CAG added that highway authority’s failure to impose the contractual damages led to an excessive benefit of Rs 203.07 crore ( Rs 252.31 crore less Rs 49.24 crore) for the contractors, resulting in an corresponding loss for the highway authority.

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Meanwhile, responding to the audit observations, the Roads and Transport Ministry argued that the highway authority followed a 2014 circular capping penalties at 1 per cent of the project cos and stared that the substitution approvals for projects in Nanded and Thane belonged to this guideline, recognising damages to be recovered from future payments to the new contractors. But the CAG slammed NHAI for not including this penalty cap in the contracts signed after 2014, although there were plenty of opportunities to proceed in this regard.

The CAG argued that relying on internal circulars to override contractual terms was irregular and violated transparency norms, Indian Express reports. Besides, the report indicated that NHAI’s decision to shift the penalty burden from old contractors to new ones were “wholly unnecessary”. “This was wholly unnecessary as NHAI was holding Performance Bank Guarantees of Rs 205.25 crore (valid till May/August 2022) from the old Concessionaires, which could have been encashed,” Indian Express reported, citing CAG reports.