**Executive Summary**
The Government of India has introduced a cost escalation compensation mechanism to mitigate the impact of rising fuel and material prices on National Highway projects. These measures, effective from 1 April 2026 to 30 June 2026, aim to provide financial relief to contractors and concessionaires. Key actions include shifting to monthly payment cycles and shortening the reference periods for price adjustment indices to improve sectoral liquidity.
**Key Points / Main Content**
**Payment Frequency and Liquidity**
* Provisions for both Engineering, Procurement, and Construction (EPC) and Hybrid Annuity Model (HAM) projects have been relaxed to allow for monthly payments.
* Payments are contingent upon the work executed meeting prescribed quality standards and specifications.
* For HAM projects, price escalation calculated through the Price Index Multiple (PIM) can now be released monthly to boost cash flow.
**Revised Price Adjustment Mechanism (EPC Contracts)**
* The reference period for the Wholesale Price Index (WPI) regarding construction machinery, cement, steel, and other commodities is reduced from three months to one month prior to the Interim Payment Certificate (IPC) month.
* For bitumen, the official retail price reference is now the first day of the month, one month prior to the IPC month, replacing the previous three-month period.
* Price adjustment payments will be released simultaneously with regular monthly payments.
**Project Continuity**
* The measures are designed to ensure uninterrupted construction and maintenance of National Highway projects despite global economic volatility.
* The mechanism is subject to further review after the initial three-month period based on the prevailing global scenario.
**Impact Analysis**
**Contractors and Concessionaires**
**Impact**
They will benefit from significantly improved liquidity and cash flow due to more frequent payment cycles and price adjustments that more accurately reflect current market costs.
**Action Required**
Must ensure all executed work strictly complies with prescribed quality standards and specifications to remain eligible for the relaxed monthly payment provisions.
**Ministry of Road Transport & Highways / Implementing Agencies**
**Impact**
The workload for processing payments and calculating escalations will increase due to the shift from quarterly or delayed cycles to monthly cycles.
**Action Required**
Must update administrative processes to adopt the new one-month reference periods for WPI and bitumen pricing when calculating IPCs.
Key Entities Referenced
Ministry of Road Transport & Highways: The primary government ministry responsible for the formulation and administration of rules related to road transport and national highways.
Cost Escalation Compensation Mechanism: A relief initiative introduced to mitigate the impact of rising fuel and material prices on contractors and concessionaires of national highway projects.
EPC (Engineering, Procurement, and Construction) projects: A contract model for highway development where payment and price adjustment provisions have been relaxed to improve liquidity.
HAM (Hybrid Annuity Model) projects: An infrastructure delivery model for which the government has enabled monthly releases of price escalation calculated via the Price Index Multiple.
Ministry of Road Transport & Highways
Government of India Announces Cost Escalation
Compensation Mechanism to Mitigate Impact of
Global Scenario on National Highway Projects
Posted On: 02 APR 2026 6:11PM by PIB Delhi
In view of the prevailing global scenario and the consequent rise in prices of fuel, construction materials,
and related logistics, the Government of India has announced a set of measures to address the impact on
National Highway projects. These measures are aimed at providing relief to contractors and
concessionaires while ensuring uninterrupted construction and maintenance of National Highway projects
across the country. These measures will be applicable for a period of three months, from 1st April till 30th
June 2026, or until further review based on the global economic situation.
As part of the measures, provisions for EPC projects and HAM projects have been relaxed to enable
monthly payments to contractors and concessionaires for work executed in compliance with prescribed
quality standards and specifications.
Further, the mechanism for price adjustment under EPC contracts has been modified to reflect prevailing
market conditions. The Wholesale Price Index (WPI) for key components such as construction machinery,
Ordinary Portland Cement, mild steel, and other commodities shall now be taken for one month prior to
the relevant Interim Payment Certificate (IPC) month, in place of three months prior to the relevant IPC
month.
Similarly, for bitumen, the official retail price applicable as on the first day of the month, one month prior
to the IPC month, will be considered for price adjustment, replacing the earlier three-month reference
period.
Additionally, price adjustment payments under EPC contracts shall be released along with monthly
payments. In HAM projects, price escalation calculated using the Price Index Multiple (PIM) can also be
released on a monthly basis, thereby improving liquidity and cash flow for the contractors and
concessionaires involved in the construction and maintenance of National Highway projects.
The initiative reflects the Government’s proactive approach to address sectoral challenges and its
commitment to maintaining momentum in infrastructure development by ensuring financial stability and
operational continuity in National Highway projects.
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GDH/HJ
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