DISPUTES IN MEGA PROJECT AND ALTERNATE

RESOLUTION MECHANISM
By Narendra Saigal
Director (Contract)
Military Engineer Services
CE (AF) Ahmedabad
Introduction
1.
The scope of Mega projects for any Govt establishment is large. It
includes large variety of work such as residential and technical buildings, dams,
roads, airfield docks, jetties, power station, water supply and drainage scheme
etc. In order to execute these types of projects a contract is required to be
entered between a Govt agency or another agency with contractor.
2.
A contract contains reciprocal promises. If one contracting party feels that
other party has failed to perform its obligation, the dispute arises between the
parties. Disputes are inevitable in construction contract. A construction contract
has, in it-self inherent seeds of difference or disputes, which can be easily and
speedily sprout and call for decision to smoothen out the process.
Factors Responsible for Disputes.
3.
There are number of factors, which cause disputes between department
and contractor in execution of Mega Projects. Some of the reasons are discussed
in succeeding paragraphs.
Ineffective Management.
4.
The success of mega project generally is guided by the efficiency and
practical effectiveness of the procedure adopted to execute basic project
management. Ineffective management only creates disputes. It is essential to
develop total project management approach plan to obviate disputes.
5.
The vastness and complexities of project will guide the breakdown
structure of project management. However, vital activities are Planning,
Organising, Monitoring and Contracting. Failure in any one of the activities will
result in delay in completion of project, which will cause disputes.
6.
For efficient project planning it is essential to identify a work breakdown
structure with their interface and define schedule for the same. In order to
succeed, the planning should be logical, thorough and should be made with
honest approach.

-2Selection of Contractors.
7.
Selection of Contractors is one of the major factors causing the disputes.
In any department, if list of contractors working with the department is analysed
for contract of value more than 1 Crore, it will be noticed that there may be 10%
to 15% of contractors who create disputes in all contracts, 20% to 30% of
contractors who create disputes occasionally and 55% to 70% do not create
disputes. Thus, it is necessary that past record of contractors should be analysed
before issue of tender.
8.
It may not be legally correct to deny tenders to the firms who are habitual
in creating disputes. But introducing pre-qualification criteria in which negative
marks are included for invoking arbitration cases in completed contracts in last
five years can discourage these types of firms.
Selection of Consultant.
9.
Selection of consultant plays very important role in completion of any
Mega Project. Technical proficiency in planning, designing, preparation of
drawings and preparation of contract in Mega Project is of prime importance.
Failure by consultant in any one of the activities will ultimately result in
dispute.
10. Most of consultants employed in mega projects have shown inherent
weakness in preparation of Bill of quantities. Number of Mega Projects faced
disputes after completion due to increase in quantities beyond the permissible
limit as specified in the contract. This is due to incorrect preparation of bill of
quantities.
Quality of contract documents.
11. Quality of contract documents plays very important role in smooth
completion of project. It reflects the quality of planning, design, specification
and drawings. Failure in any of these aspects will ultimately create disputes.
12. Selection of type of contract also plays an important role in smooth
completion of project. Most of the Govt departments except MES use item rate
tender for Mega projects. It has been noticed that there is abnormal
increase/decrease in quantities catered in bill of quantities, which normally
result in disputes.

-3Unawareness of consultant with department methodology of working also

creates number of disputes and extra payments to the contractor. This was
experienced by the department in execution of certain works based on
consultants design and drawings.
13. Lump sum contract is another form of tender, which is most commonly
used in MES. The success of lump sum contract depends upon quality of
drawing, design and specification. Disputes in lump sum contract are normally
different from those in item rate contract. Ambiguous specification, scope of
work and drawings are main reasons for disputes in lump sum contract.
Financial Constraints.
14. There is a tendency of under bidding amongst contractors to secure a
contract and after winning the contract they resort to claims and raise disputes.
The mind and machinery of such contractors is geared up for creating dispute,
from the initial stage of tendering for the project. The foundation of arbitration
is laid with filling of tender and it is nurtured as the work of building progresses
and the final bill provides jumping pad. In present scenario the Govt official has
no authority to reject lowest bidder and accept second lowest bidder.
15. Mega projects need heavy capital investment and normally it is observed
that after start of construction, regular and adequate funds are not available for
interim payment to contractor. This results in disputes.
Contractual Aspect.
16. Contractual problem starts from non-availability of clear site at times.
Sometime contractual problem crop up in the midst of the project, ensuing hold
up of work on several occasions. Certain issues like design changes, non
availability of material to be issued by department, settlement of rates of
deviated item, payment of running bill, make things complex in nature resulting
disputes.
Delayed decision or Indecision
17. Construction of Mega Projects often get delayed due to lack of
knowledge and initiative by the site executive. Mega Projects are very complex
in general and authorities in-charge should take prompt decision concerning
financial, technical and contractual matter, otherwise, there will be disputes. It is
noticed that BOO are constituted to decide any implication but no firm decision
comes out of BOO resulting in delay in project construction, ultimately causing
disputes.

-4Causes of Disputes
18. In civil engineering construction, the dispute can be due to legal as well
as contractual aspect. The legal disputes are rare in comparison to contractual
disputes.
Legal Dispute.
19. The legal disputes are normally disputes, which have been created due to
certain court order on which both the contracting parties have no control or one
of contracting party has no control. Some of such disputes are listed below: (a) Honble Supreme Court banned all the crusher in and around
Delhi. The Supply of aggregate became difficult and the rates also
increased. The contractor requested reimbursement of increased rates
from department. The department refused of the reimbursement. Thus,
there was a dispute.
(b) As per the contract, the quarry of stone was permitted in defence
land. The court issued order banning the quarry. The contractor asked
payment due to refusal of quarry from the department.
(c) There was a contract for building a dam up to particular height.
The people whose land was coming in the submersible area approached
court for reduction in height of dam. The court stayed the construction
activity. This may ultimately result in dispute.
Contractual Dispute.
20. Contractual disputes are those disputes, which emerge from the
conditions of contracts. The contractual dispute between owner (department)
and contractor are due to default by owner or contractor.
21. The most common disputes which are raised by contractor with (due to
owner default) department are: (a)

Failure to hand over possession of the site to the contractor.

(b)

Delay in supply of drawing and decision.

(c)

Delay in supply of material to be issued by department.

-5(d) Ordering suspension or stoppage of work, interfering with the

progress of work.
(e) Failure/delay in making payment of running account bill including
settlement of final bill.
(f)

Ordering work beyond contract condition, excess quantities.

(g) Delay caused by other agency employed at the site work by

department.
(h)

Delay in approval of sample, design mix etc.

(j)
Delay in finalisation of approval in principal for extra items, rates
for payment (star rate) etc.
(k)

Changes at belated stages resulting demolition of executed work.

(l)

Reduction of running account payment.

(m)

Reduction in scope of work.

(n)

Extra payment due to interpretation.

22. The disputes (claims), which are raised by department against contractor,
are claim for extra cost in completion of work due to: (a) Extra cost of completion at the risk and cost of contractor due to
failure of contractor in completion of contract.
(b)

Delay in completion.

(c)

Defective materials and/or workmanship.

(d)

Failure to employ qualified Engineer.

(e)

Failure to take safety precautions.

(f)

Causing damage to property or work of other Agency.

-6Resolution of Dispute.
23.
The resolution of disputers as per Arbitration and conciliation Act, 1996
can be made by conciliation in addition to Arbitration.
24. Arbitration is considered to be quicker and more efficient than litigation.
However, experience of the last three decades has shown that arbitration
proceeding have become time consuming, expensive and complex like court
proceeding. Even after publication of award, the parties move to the court for
setting aside award due to various reasons. In such a situation Alternate Dispute
Resolution (ADR) has become popular in developed countries.
Alternate Dispute Resolution Mechanism.
25.

Alternate dispute resolution includes the following: (a)

Negotiated settlement.

(b)

Independent expert determination.

(c)

Adjudication.

(d)

Executive tribunal.

(e)

Conciliation.

(f)

Dispute Review Board.

Negotiated settlement.
26. Construction claims are complex in nature and are combination of law
and construction practice. Negotiated settlements are always possible when both
the parties adopt flexible, judicious and fair approach towards disputes. It is
necessary that both parties understand basis and principal of contract so that
they are aware of their rights and obligation. In such settlement both the parties
sit together and negotiate on each claim and decide the admissibility and
amount payable against each claim. The settlement is recorded in writing duly
signed by both parties. However even after reaching settlement sometime the
contractors do raises balance claims in Arbitration.

-7Independent Expert Determination.

27.
This method is in use for many years and trend is to encourage it.
This method is speedier and lesser expensive process but can be adopted only in
case of disputes relatively straightforward.
Adjudication.
28. In countries like UK there is now a statutory provision for adjudication in
case of construction dispute. More than 1600 Adjudicator has been nominated.
Adjudicator gives his finding on dispute, which help both the parties to know
independent third party view on dispute as well as their rights and obligation
under the contract. The majority of these adjudicator appointed in UK relates to
interim payment to sub contractor. The term judicial settlement is generally
used synonymously with adjudication.
Executive Tribunal or Mini Trial.
29. Executive tribunal consist of senior executives of organisation in disputes
and their main aim is to access a situation as objectively as possible before
directly negotiating a solution. The Executive tribunal is generally used in some
of developed countries where a legal department and junior staff is bogged
down in a dispute which is seems to be going no where and is costing time and
money and damaging other parts of commercial relationship.
Conciliation/Mediation.
30. The resolution of dispute as per Arbitration and Conciliation Act 1996
can be made by conciliation also. The role of conciliator is to assist the parties
in an independent and impartial manner in their attempt to reach an amicable
settlement of their dispute. The process of conciliation is aimed at reaching a
fast solution of disputes between the parties. The outcome of conciliation
become binding to both parties with consent of parties. Where both the parties
cannot reach on an agreement the process of conciliation comes to an end. The
main point of difference between conciliation and mediation is that, conciliation
is more formal than mediation. A mediator can go on formulating new proposal
till they are acceptable where as conciliator usually only issue a single report
through he does so after discussions.

-8Dispute Review Board.

31. Dispute review board is nothing but a team of members experienced with
the type of construction involved in the work and in interpretation of document.
Normally it consists of three members, one selected by each party and approved
by the other and third member selected by the two members already selected. If
members so selected are not approved by other party then there is provision of
selection of member by a nominated institution. The selection process is
completed just after conclusion of contract. As soon as any dispute is referred to
DRB, the members meet at site immediately, hear the parties, take a decision
and give their recommendation. These recommendations are binding on both the
parties and are implemented by the parties forthwith. These recommendations
are normally admissible in any subsequent dispute resolution procedure
including Arbitration. The resolution of disputes by DRB is fast track
Arbitration without calling statement of case, pleading in defence rejoinder etc
from both the parties. The DRB is required to issue their recommendation
within a fixed period. If the recommendations of DRB are not accepted, by
either party it may refer in writing to Arbitration in accordance with contract
clause.
Conclusion.
32. Dispute in a Mega Project can only be avoided if department as well as
contractor makes a sincere, honest and rational approach. It is advisable for
department not to make contract totally one sided and work with a principle to
pay now if you have to pay in Arbitration. It is also advisable for contractor not
to demand more than what is actually due and not try to exploit the situation to
earn more profit.