India Rewrites HAM Highway Contract to Tie Payments to Verified Progress

The Ministry of Road Transport and Highways has issued a new Model Concession Agreement for highway projects awarded under the Hybrid Annuity Model, replacing the framework that governed earlier contracts. The agreement, introduced on 18 September, spans the full project cycle — from conditions precedent and right-of-way to construction payments, operation and maintenance, termination and dispute resolution.

Under HAM, the concessionaire finances and builds the road and is later compensated through a mix of construction-stage payments and annuities. The revised agreement sets out design, financing, construction and maintenance obligations in greater detail, and introduces finer milestones and monitoring mechanisms.

Payments tied to certified progress

The most significant change concerns how developers are paid. Government agencies will disburse 40% of the bid project cost during construction in ten instalments of 4% each, released against physical-progress milestones ranging from 5% to 90%. Each milestone must be certified by the independent engineer, after which the authority is required to pay within 15 days.

The balance of the project cost will be paid through 30 biannual instalments starting 180 days after the commercial operation date. A 70:30 WPI-CPI formula will adjust the bid project cost for price-index changes between bidding and invoicing.

The arrangement gives developers a clearer view of when construction spending turns into receivables, though payment now depends more directly on measurable, certifiable progress.

Liquidity support and bidding safeguards

To ease construction financing, the authority may extend a mobilisation advance of up to 10% of total project cost in two instalments against a bank guarantee. Concessionaires that buy and register qualifying alternative-fuel equipment — electric, hydrogen or biofuel machinery — or specified automated intelligent construction machinery within the prescribed period will see the interest rate on the corresponding portion of the advance cut by half.

At the same time, bidders quoting more than 10% below the estimated project cost must furnish additional performance security equal to 10% of the difference.

Delay damages and termination payments

The authority is responsible for key conditions precedent, including right-of-way, environmental permissions, forest and wildlife clearances, and appointment of the independent engineer. Delays on its part attract damages of 0.1% of the performance security per day, subject to a prescribed ceiling. Delays attributable to the concessionaire draw damages of 0.2% of the performance security per day.

A structured termination-payment mechanism links payouts to physical progress rather than treating them as simple expenditure recovery. For instance, termination after the 20% milestone provides for 50% of debt due or 3% of bid project cost, whichever is lower, with the percentages rising progressively at later milestones. The point at which a project fails therefore carries particular weight for lenders and developers.

Monitoring and safety

Physical progress will be measured using predefined weightages for individual construction activities, supported by monthly progress reporting, inspections, testing, video recording and technical audits. Road safety gets separate oversight: the authority must appoint a safety consultant, including for an audit of completed works before the commercial operation date. The independent engineer is to be replaced every three years, reducing the risk of a single monitoring agency staying attached to a project for its entire life.

The agreement also extends beyond construction. Its maintenance framework requires an asset-management system covering an inventory of road assets, their condition, maintenance needs and costs, along with a real-time database — a shift towards a more data-driven lifecycle approach in which operating-period quality matters as much as construction.