Risk Allocation Begins at the Bid Table, not at the Site Office

Why were the contracts that later collapsed on execution usually mispriced for risk at the tender stage itself?

There’s a familiar story in Indian infrastructure: a contractor wins a marquee EPC contract, the award is celebrated, and eighteen months later the same project is in arbitration over cost overruns, force majeure claims, or disputed change orders.

Everyone points to execution failures, poor site management, delayed approvals, and contractor-client friction. Having spent three decades around these projects, I’d argue the real story usually starts much earlier, in how risk was allocated and priced at the bidding stage, long before the first foundation was poured.

Every EPC or hybrid annuity tender contains a risk allocation matrix, explicit or implied: who bears land acquisition delays, who absorbs raw material price escalation, who owns force majeure exposure, who’s liable if government approvals lag. Bidders routinely underprice these risks because acknowledging them fully in the technical or financial bid feels like admitting weakness, or because the pressure to stay price-competitive squeezes out the contingency that genuine risk transfer requires. The tender that wins on paper by under-pricing risk is often the tender that becomes commercially unviable eighteen months into execution.

This is where tender strategy and financial modelling must work together, not as separate exercises handled by separate teams. A bid team focused purely on technical scoring and a finance team focused purely on IRR projections, working without a shared view of the risk allocation matrix, will each optimise for a different version of ‘winning’, one that satisfies the evaluator on paper, and one that satisfies an internal investment committee, without fully accounting for what happens if a specific risk actually materialises during execution.

I’ve advised on water infrastructure and transport tenders where the single most consequential decision wasn’t the headline price; it was how the bid team chose to respond to a single clause buried on page forty of the concession agreement, regarding who absorbs the cost if utility relocation takes longer than the authority’s estimate. Bidders who flagged this clearly in their bid, negotiated a more favourable position, or priced a realistic contingency into their financial model, protected their margins years later. Bidders who accepted the clause silently, hoping it wouldn’t materialise, often found it did.

There’s a competitive dimension to this too, one that’s frequently missed. If you can reasonably anticipate that most competing bidders will underprice a particular risk, because everyone reads the same clause the same optimistic way under bid pressure, you have a genuine opportunity to differentiate by pricing it correctly and building a bid narrative around disciplined risk management, rather than simply the lowest number.

Evaluation committees, particularly in PPP structures with institutional lenders involved, increasingly reward bids that demonstrate risk-awareness, because lenders themselves are far more sophisticated about default risk than they were a decade ago.

This is precisely why PPP structuring and financial modelling sit alongside tender strategy in my advisory work, rather than as an afterthought. A concession structure that looks attractive in a base-case model but hasn’t been stress-tested against realistic downside scenarios- traffic shortfalls on a toll road, delayed tariff revisions on a water utility- isn’t a bankable bid, even if it wins the tender. And a bid that wins but can’t secure lender confidence later on creates exactly the kind of execution stress that later gets blamed, unfairly, on the delivery team.

None of this is a critique of execution capability. India has excellent contractors and project managers who can deliver complex infrastructure exceptionally well when the underlying contract terms are commercially sound.

The problem is upstream: risk that was never genuinely allocated, priced, or negotiated before the contract was signed becomes execution’s problem to inherit, whether execution had any say in creating it. There’s a negotiation dynamic worth naming as well. Many bidders treat the draft concession agreement or contract terms attached to an RFP as fixed, non-negotiable text, when in practice, pre-bid queries and clarification rounds are a legitimate and underused mechanism for flagging disproportionate risk allocation before submission.

I’ve advised clients who used the pre-bid query process not just to seek clarity, but strategically, to place on record their concerns about specific risk clauses, which strengthened their negotiating position later if that risk did materialise during execution, and occasionally prompted the authority to revise the clause for all bidders before the tender closed. Silence during the bidding stage is often mistaken for acceptance, and it rarely serves the bidder well later.

For infrastructure companies and institutional investors evaluating a pipeline of upcoming tenders, the useful diagnostic question should not be ‘can our team deliver this project?’ or ‘Did we genuinely price and negotiate the risk in this specific contract?’ or ‘ Did we accept the client’s version of risk allocation because the deadline was tight and the pressure to submit was high?’

These questions, asked honestly at the bid table, help prevent a great many of the disputes that later show up in an arbitration filing.