The obligation he thought had ended
A contracts manager at a mid-size contractor in Gujarat had worked on two HAM packages and thought he understood the model. Construction was done on Package 2. PCOD was achieved. The 40% construction grant had arrived in tranches. The performance security was releasing. He was already focused on the next bid.
Then NHAI's Independent Engineer issued a defect notice. Road markings on a 12 km section had faded after the monsoon. The contractor's site team had demobilised. The project was "closed" internally. The contracts manager told operations it was not their problem anymore.
NHAI disagreed. Under the Concession Agreement, the O&M period had started at PCOD and would run for 15 years. Routine maintenance, including road marking restoration within the prescribed timeline, was the contractor's obligation. Non-compliance triggered a deduction from the semi-annual annuity.
The contracts manager's company had won the package. They had built the road. They did not fully understand what they had signed up for.
What HAM is (briefly, because it is not the point)
The Hybrid Annuity Model splits government payment into two parts. The first 40% comes as construction support (grant) paid in milestone-based tranches during the construction period. The remaining 60% comes as a semi-annual annuity paid over 15 years after Provisional Certificate of Completion (PCOD).
The annuity is not guaranteed. It flows when the contractor maintains the road to the condition standards specified in the Maintenance Manual (Schedule 3 of the Concession Agreement). If the condition deteriorates below the threshold and the contractor does not rectify it within the prescribed timeline, NHAI deducts from the annuity.
That is the clause most contractor teams have not read carefully enough.
The construction period
On a 500 crore HAM package, the government pays 200 crore during construction. The remaining 300 crore comes as annuity: approximately 20 crore per year over 15 years (the actual figure includes inflation-linked adjustments specified in the CA).
The 200 crore grant arrives in tranches tied to physical milestones defined in Schedule 4 of the CA. A typical structure runs from 5% to 10% at each milestone threshold, with the IE certifying physical completion at each stage before the milestone payment triggers.
The construction period obligation is not simply to build the road. It is to build it to specification, with documentation that proves it. NHAI's IE will issue defect notices during construction. A defect notice that is not resolved before PCOD application becomes a reason for PCOD rejection or PCOD with conditions.
Three things contractors consistently underestimate in the construction period:
As-built drawings. The as-built must reflect what was actually constructed, chainage by chainage. Drawings that show design intent rather than actual construction become a problem in O&M when a defect location cannot be matched to the as-built record.
Material test certificates. Every pour, every layer, every chainage needs test certificates. These are the evidence that the road was built to specification. When a defect appears in Year 8 of the O&M period and NHAI attributes it to poor construction, the contractor who has the test certificates from the construction period is in a different position from the contractor who does not.
IE interaction log. Every IE instruction, comment, and clearance should be acknowledged in writing. Verbal clearances from the IE do not protect the contractor if the IE's successor raises the same issue later.
PCOD: the completion gate
PCOD application triggers the shift from construction to O&M. The contractor applies to the IE on completing the required scope. The IE has 30 days to inspect and respond.
PCOD can be partial. If the contractor completes the required percentage of the highway (typically 75% or a specified minimum length) and the remainder is delayed by employer-caused factors (land acquisition, utilities, forest clearance), the contractor can apply for PCOD on the completed stretch. The CA specifies the minimum stretch length and completion percentage for partial PCOD.
A key point: PCOD is not automatic at the end of the scheduled construction period. The contractor applies and the IE certifies. If the IE raises outstanding defects, the contractor resolves them before PCOD is granted. Every month between the application and PCOD grant is a month in the construction period, with full mobilisation costs but no annuity flow.
The O&M period: 15 years of active obligation
This is where most contractor teams are underprepared.
The O&M period is not passive. It is not a warranty period where you only respond when something breaks. It is an active maintenance obligation. The Maintenance Manual (Schedule 3) specifies condition standards and response timelines. The IE monitors compliance and can issue defect notices at any inspection.
Routine maintenance covers what most people think of as basic upkeep: pothole repairs within 24 hours of identification, road marking restoration within the prescribed period, drainage clearing, signage maintenance. These are ongoing, daily obligations.
Periodic maintenance covers planned major works: surface treatment or overlay at specified intervals, bridge inspection and repair, pavement rehabilitation when IRI exceeds the threshold. The CA specifies the intervals and condition triggers.
Emergency maintenance requires response within 12 to 48 hours depending on the severity of the defect. A structural failure or a safety hazard is an emergency. The response must be documented.
The IE conducts periodic inspections and can inspect at any time. If the IE finds that the condition has deteriorated below the specified standard and the contractor has not identified or addressed it, NHAI can deduct from the semi-annual annuity under Clause 27 of the standard HAM CA.
DLP within HAM: it does not end at 5 years
Under NHAI EPC contracts, the Defect Liability Period is typically 5 years from the Scheduled Completion Date. Under HAM, the structure is different.
The 15-year O&M period is the effective liability period for the highway condition. Any construction defect that manifests during O&M is the contractor's obligation to rectify at their cost. NHAI does not accept "this was a construction defect, not a maintenance defect" as a distinction that transfers liability. If it appears during O&M, you fix it.
This is a fundamentally longer liability window than EPC. A contractor running multiple HAM packages needs O&M teams and budget allocations for each package stretching 15 years forward from each PCOD date.
The documentation trail from Day 1
The contractor who wins a HAM package in 2026 needs to think about what documents they will need in 2041 to defend an annuity deduction. Those documents need to start being created on Day 1 of construction.
During construction: Daily site diaries indexed to chainage and activity, material test certificates filed by chainage and material type, IE correspondence acknowledged and filed, as-built drawings updated progressively.
At PCOD: Complete as-built drawing set, full material test certificate set, IE clearance for every defect raised during construction, photographic condition record of the entire highway.
During O&M: Every maintenance activity logged with date, location, defect type, and repair method. Every IE inspection acknowledged in writing. Emergency response documentation with timestamps. Condition surveys with IRI measurements at the required intervals.
If NHAI deducts from the annuity in Year 8, the contractor needs records from Year 1 to mount a defense. Those records cannot be reconstructed in Year 8.