New Delhi: Changes will be made to the surety bond offering in road making contracts to make it more lucrative, said road transport and highways minister Nitin Gadkari.
Speaking at a CareEdge Ratings event in Delhi on Tuesday, he said the present surety bond offering has found no takers.
“It took us three years to introduce the insurance surety bond product after following up with regulatory authorities. The bond can be offered in place of a bank guarantee. But they have made the product so restrictive that no contractor can avail it,” Gadkari said.
Insurance surety bonds can be used as a substitute for bank guarantees in government procurement tenders. The Insurance Regulatory and Development Authority of India (IRDAI) had issued guidelines for these bonds and allowed their issuance from April 1, 2022. The IRDAI‘s guidelines listed six types of surety contracts. These contracts are considered essential for meeting the infrastructure development goals of the country.
In April 2022, the Centre had said that these bonds will be accepted as a substitute for bank guarantee in government procurements. The government’s intention was to reduce indirect cost for suppliers and work contractors.
It is estimated that banks seek 30-50% of cash money margin (from smaller construction companies), which is then stuck in the bank guarantees.
