Golden Quadrilateral Iip

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Golden Quadrilateral Iip

  1. 1. Golden Quadrilateral - Legal Issues Prof G Raghuram M Rajesh Kumar Indian Institute of Management, Ahmedabad
  2. 2. Details of Contracts & Legal issues Till March 31, 2009 Total no of contracts awarded: 128 Total no of stretches completed: 113 Total number of JV’s formed: 54 Total number of contracts under disputes: 84
  3. 3. Progress of work Work done till March 31, 2009 Cumulative length Cum % progress of Total Length Corridor completed in km contracts under (kms) (%) implementation 1419 DELHI-MUMBAI 1419 - (100%) 1263 49.58% MUMBAI-CHENNAI 1290 (97.90%) (for 164km) 1591 50.64% KOLKATA- CHENNAI 1684 (94.48%) (for 197 km) 1440 89.82% DELHI-KOLKATA 1453 (99.10%) (for 366 km) TOTAL GQ 5713 80.71% 5846 (97.72%) (for 727 km)
  4. 4. GQ: Time Overrun 40 30 Time overrun (months) 20 10 0 0 20 40 60 80 100 120 -10 Contract No
  5. 5. GQ: Cost Overrun 250 200 Cost overrun (Rs Crores) 150 100 50 0 0 20 40 60 80 100 120 -50 -100 Contract No
  6. 6. Dispute Resolution Mechanism There were innumerable number of Dispute Resolution Boards (DRB) formed to resolve various disputes and finally 84/128 packages resorted to arbitration for resolution/reversal of various recommendations made by DRB. There were also many court cases.
  7. 7. Methodology of Analysis Total number of court cases analyzed: 11 Total number of arbitration cases analyzed: 47 The study involved: Collection and detailed study of various arbitration and court cases related to GQ. Analysis of the disputes and relevant contractual clauses to check which party has wrongly interpreted the clause leading to the dispute. Scripting out the lessons. Still in progress, Why no disputes in 44 packages?
  8. 8. Reasons for Dispute Provision of inadequate data Misinterpretation of technical specifications Change in policies or legislations in the region of work Misinterpretation of contractual clauses Non adherence to time limitations Erroneous actions of engineer, employer, or contractor
  9. 9. Reasons for Dispute Provision of inadequate data The main reason for the occurrence of the dispute is due to faulty data provided by the NHAI Misinterpretation of technical specifications In some cases the technical details were not specified properly and discrepancies were reported in payment made due to such misinterpretations Change in policies or legislations in the region of work There were claims against the increase in the prices due to variation in tax rates, policy changes during the implementation of contract
  10. 10. Reasons for Dispute Misinterpretation of contractual clauses Interpretation of a sub clause independent of other sub clauses in the same clause. Interpretation of the clause independent of other clauses of the contract. Interpretation of clause along with other clause when the clause should be interpreted individually. Interpretation of a clause of a contract along with some other law outside the contract but relevant to present situation. (Like refereeing to another judgment of similar case). Interpretation of a clause based on current policy instead of old policy after it has been completely amended. Interpretation of similar clause in contract which has higher priority than this clause of the contract when there is no scope of ambiguity in the present clause etc
  11. 11. Reasons for Dispute Non adherence to time limitations The Contractor is not aware of the policy announcement or he neglected the announcement because he did not pay attention to this particular rule. The Employer not providing compensation for increase in various taxes during the implementation of the contract, due to change in policy during the implementation of contract. These changes are applicable and the claim should be made within a particular duration mentioned in the contract. In case of no claim there is compensation made and the Contractor is liable to pay the variation.
  12. 12. List of Some Claims Reimbursement of additional costs incurred on account of change in legislation/policy with respect to deemed export benefits. Loss of overheads and profit on account of omission of BOQ item for cutting and stacking of trees. Separate payment for the reinforcement of the cast insitu piles. Payment towards price adjustment on works executed as per BOQ. Determination of rate for scratching of existing bituminous surface before laying of WMM/GSB layer as a profile correction course. Decision of rates for sinking of wells pertaining to different diameters and depths. Payment for embankment construction in clearing and grubbing. Payment for provision of 20mm pre moulded filler joints in Culverts, Minor Bridges and Underpasses. Wrongful extension of defect liability period by the engineer
  13. 13. Reasons for Dispute Obligations of employer not being met Events defined as an employer’s risk Variations to the terms of the contract External events Ambiguity in contract conditions Subsequent legislation Force majeure Unjustified termination of contract Inequity in the contractual provisions Engineer not performing actions as required Cost claims on account of delay Source: Gupta and Venkatraman
  14. 14. Arbitration Cases 200 600 Project Cost 175 Claimed vs Project Amount 500 150 400 125 Percen tag e R s C ro re 100 300 75 200 50 100 25 0 0 1 6 11 16 21 26 31 Case
  15. 15. Arbitration Cases Claimed Amount 120 Aw arded vs Claimed Amount 200 100 150 80 P e rc e n t a g e R s C ro re 60 100 40 50 20 0 0 1 6 11 16 21 26 31 Case
  16. 16. Dispute Resolution Mechanism in FIDIC Contract High Courts Engineer In charge & Supreme Court Dispute Resolution Arbitration Tribunal Board (DRB) (AT)
  17. 17. Implications and Lessons Contractors The contractor has to get written approval of engineer/employer prior to usage of method and material which is unconventional and other than prescribed in contract clauses as a variation item. This might some times lead to washing away of overheads and profits if the variation is not approved. The contractor should provide a bill of approximate final cost that will be incurred before start of modified work under any clause. This helps both the contractor as well as the employer in negotiating the final cost per unit of the same item if the proposed costs of the contractor mismatch with expected cost of employer. The contractor should be clear on the rebate quoted for such material since he is not sure on final condition of the material and the salvage value. A better option would be quoting the variable rebate cost based on the condition of the material and the effort in terms of cost to recover the material.
  18. 18. Implications and Lessons Engineer Neutrality Documentation In certain FIDIC contracts, can be the first call of dispute resolution
  19. 19. Implications and Lessons Employer/NHAI The NHAI tends to interpret the clauses of contract differently and there are certain technical gaps in the contract which should be corrected. Also NHAI should give adequate flexibility for the contractors in usage of new material and varying the pavement design if it follows the codes. (Substitute for the old conventional design with new design done based on the life cycle cost analysis). The engineer always has a key role in approval of technical design in any project. He should work harmoniously with the employer and the contractor to prevent such technical discrepancies and misinterpretations. The NHAI take adequate care in appointing both resident and the engineer representative for any project. Also both the engineers should be consistent in interpretation of the clauses otherwise, misleading both contractor as well as the employer which can be a potential cause for a dispute.
  20. 20. Implications and Lessons Financier There is a need for the financier to play a key role in reducing the disputes. The financiers like World Bank, Asian Development Bank should play a key role in modification to be made to the clauses of the contract and especially dispute resolution mechanism. Since most of the projects seen have under gone time and cost over run which obviously affects the pay back period and increase in the cost to be financed. In projects financed by NHAI/MORTH, there is greater concern because the overspending on project is indirectly overspending taxpayer’s money.
  21. 21. Conclusions Inadequacy of the contract, loose wordings, margin of error Inadequacy of the DPR Land acquisition and provision of unencumbered site Disputes are consuming enormous energy of the road infrastructure development process Safety yet to come in as an issue: PILs
  22. 22. Conclusions Multiple stakeholders, high stakes Complexity of aspirations Litigation friendly, attitudes Natural context for legal disputes No getting away from doing detailed homework, with adequate legal support, and knowledge management Focus on dispute minimization
  23. 23. Conclusions Project Structuring Risk Assessment and Mitigation RFQs, RFPs Tendering and Bidding Financing Concession Agreements Project Management
  24. 24. Thank you

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