To address the application of Insurance Surety Bonds (ISB) for NHAI contracts, NHAI arranged a workshop in New Delhi. Reviewing developments and promoting broader instrument usage were the goals. Key NHAI executives as well as representatives from a range of stakeholders, such as insurance companies, industry groups, and ministries within the central government, gave speeches during the session.
For all government procurements, Insurance Surety Bonds and Bank Guarantees are equivalent, according to the Ministry of Finance, Government of India. They should be used as an extra means of presenting Performance Security and/or Bid Security, according to NHAI’s advocacy. 164 Insurance Surety Bonds have been sent to NHAI; 20 of them are for performance security and the remaining 144 are for bid securities.
Different insurance firms have issued over 700 Insurance Surety Bonds worth about Rs. 3,000 crores. The workshop’s panellists promoted the broader use of ISB for NHAI contracts by outlining its advantages. The event also covered obstacles and strategies for accelerating the instrument’s adoption.
Protection With surety bonds, insurance firms offer monetary assurances that contractors will carry out their responsibilities. It is anticipated that increased use of these tools would support the nation’s infrastructure development. In May 2024, the National Highways Authority of India (NHAI) organized a workshop in New Delhi to evaluate the implementation of Insurance Surety Bonds (ISBs) in national highway contracts. The event aimed to assess progress, address challenges, and promote broader adoption of ISBs among stakeholders.
Workshop Highlights:
- Objective: Review the progress of ISB implementation and encourage wider stakeholder participation.
- Key Speakers:
- Shri Rajendra Kumar, Member (Finance), NHAI
- Shri A. K. Singh, CGM (Finance), NHAI
- Shri N. B. Sathe, Advisor, NHAI
- Smt. Mandakini Balodhi, Director, Department of Financial Services
- Participants: Representatives from various Central Government Ministries and Departments, insurance companies, the Highway Operators Association of India (HOAI), and the National Highways Builders Federation (NHBF).
Progress and Adoption:
The Ministry of Finance has equated Insurance Surety Bonds with traditional Bank Guarantees for all government procurements. NHAI has been actively promoting ISBs as an alternative for submitting Bid Security and Performance Security. As of the workshop date, NHAI had received 164 ISBs—20 for Performance Security and 144 for Bid Security. Overall, approximately 700 ISBs, valued at around ₹3,000 crores, had been issued by various insurance companies.
Challenges and Deliberations:
Panelists at the workshop discussed several challenges hindering the widespread adoption of ISBs:
- Awareness: Limited understanding of ISBs among contractors and stakeholders.
- Regulatory Framework: Need for clearer guidelines to facilitate smoother implementation.
- Operational Hurdles: Addressing issues related to the acceptance and processing of ISBs in lieu of traditional guarantees.
The discussions aimed to identify actionable measures to overcome these obstacles and expedite the adoption of ISBs in infrastructure projects.
Significance of Insurance Surety Bonds:
Insurance Surety Bonds serve as financial instruments where insurance companies act as ‘sureties,’ providing guarantees that contractors will fulfill their contractual obligations. The broader adoption of ISBs is expected to:
- Enhance Liquidity: Free up capital for contractors, enabling them to undertake more projects.
- Reduce Dependence on Bank Guarantees: Offer a viable alternative, diversifying financial instruments available for project security.
- Strengthen Infrastructure Development: Facilitate timely completion of projects by ensuring financial assurances are in place.
NHAI’s initiative to promote Insurance Surety Bonds reflects its commitment to innovative financial solutions, aiming to bolster infrastructure development and economic growth in India.
Group Media Publication
Construction, Infrastructure and Mining
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