Mint explainer: what has changed in the new HAM highway contract?

MoRTH’s new HAM framework links construction payments to certified physical progress, while adding financing support, tighter monitoring, risk-sharing and road-safety requirements.

The ministry of road transport and highways (MoRTH) has introduced a new Model Concession Agreement (MCA) on 18 September for highway projects awarded under the Hybrid Annuity Model (HAM), replacing the framework used for earlier projects.

The new MCA covers the entire project cycle, from conditions precedent and right-of-way to construction payments, operation and maintenance, termination and dispute resolution. It also introduces more granular milestones and monitoring mechanisms.

Mint explains what has changed, and what does it mean for developers, lenders and the government.

Why a new HAM agreement?

Under the HAM model, the concessionaire finances and builds the road and is subsequently paid through a combination of construction-stage payments and annuities. The new MCA explicitly covers design, financing, construction, operation and maintenance obligations.

The new agreement introduces more granular milestones and monitoring mechanisms. Most importantly, payments are now explicitly linked to independently certified physical progress.

For developers, this means a clearer framework for converting construction work into receivables, while the government gets a more direct mechanism to link payments to work completed on the ground.

How will developers get paid?

The most consequential change is the payment mechanism.

The new MCA provides for 40% of the bid project cost to be paid by government agencies during construction in 10 instalments of 4% each, against physical-progress milestones ranging from 5% to 90%.

The independent engineer has to certify achievement of each milestone, after which the authority is required to make the payment within 15 days.

The remaining project cost is to be paid through 30 biannual instalments beginning 180 days after the commercial operation date.

The agreement also provides for inflation adjustment through a 70:30 WPI-CPI formula, allowing the bid project cost to be adjusted for changes in the price index between bidding and invoicing.

For developers, this provides greater visibility on when construction expenditure can be converted into receivables. It also means, however, that payment is more directly dependent on measurable and certifiable physical progress.

Does it make construction financing easier?

The new MCA includes a significant liquidity-support mechanism. The authority can provide a mobilization advance of up to 10% of the total project cost, in two instalments, against a bank guarantee.

The MCA also introduces an incentive linked to newer construction technology. If a concessionaire purchases and registers qualifying alternative-fuel construction equipment—electric, hydrogen or biofuel machinery—or specified automated intelligent construction machinery within the prescribed period, the interest rate on the corresponding portion of the advance is reduced by 50%.

At the same time, developers bidding more than 10% below the estimated bid project cost will have to provide additional performance security equivalent to 10% of the difference.

Who bears the risk when projects are delayed?

The new agreement creates clearer consequences for both sides.

The authority must provide key conditions precedent, including right of way, relevant environmental permissions, forest and wildlife clearances and appointment of the independent engineer.

If the authority delays these conditions, it has to pay damages at 0.1% of the performance security for each day of delay, subject to the prescribed ceiling. Conversely, the concessionaire faces damages of 0.2% of performance security a day for delays attributable to it.

The MCA also provides a structured termination-payment mechanism. In the event of concessionaire default, the payment increases with the physical-progress milestone achieved, rather than being treated as a simple recovery of expenditure.

For example, termination after the 20% milestone provides for 50% of debt due or 3% of bid project cost, whichever is lower. The corresponding percentages rise progressively at later milestones.

This makes the point at which a project fails particularly important for lenders and developers, since the termination payment is linked to the project's physical progress.

What changes in construction monitoring and road safety?

The new MCA places greater emphasis on continuous verification rather than monitoring only at the end of construction.

Physical progress is to be measured using predefined weightages for individual construction activities. The agreement also requires monthly progress reporting, inspections, testing, video recording and technical audits.

Road safety receives a separate layer of oversight. The authority is required to appoint a safety consultant, including for a safety audit of completed construction works before COD.

The independent engineer is also to be changed every three years, potentially reducing the risk of one monitoring agency remaining associated with a project throughout its life.

What does this mean for highway construction?

The immediate effect is likely to be a more milestone-driven HAM construction regime.

Developers get a clearer payment calendar, inflation protection and access to mobilization funding. At the same time, the government gets stronger safeguards against low-ball bidding, delays and poor-quality construction.

The new MCA also extends the contract beyond simply building the road. Its maintenance framework requires creation of an asset-management system covering an inventory of road assets, their condition, maintenance needs, costs and a real-time database.

That could gradually shift HAM projects towards a more data-driven lifecycle approach, with the quality of the road during its operating period becoming as important as its construction.

About the Author

Subhash is the infrastructure editor at Mint and tracks the momentous developments taking place in the space that is fast changing the Indian landscape. He finds reporting to be a passion that provides the necessary adrenaline rush and keeps you going.