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An Overview of Dispute Resolution Procedures in Road Projects With Reference to the Fidic 101 Form of Contract and Suggestions

for Improvements Paper No. 559

AN OVERVIEW OF DISPUTE RESOLUTION PROCEDURES IN ROAD PROJECTS WITH REFERENCE TO THE FIDIC FORM OF CONTRACT AND SUGGESTIONS FOR IMPROVEMENTS
Prabin Chandra Gupta* and Krishnan Venkataraman** ABSTRACT
Modern road construction contracts involve a complex interplay of contractual obligations and rights. The FIDIC form of the works contract is a commonly used standard form contract for the implementation of road contracts. Events of dispute over the interpretation of contractual conditions or otherwise are unavoidable. This paper looks into some of the principle dispute events that are commonly experienced during the execution of road contracts. The FIDIC standard form for works contracts provides for a variety of dispute resolution entities. The Engineer is the first level balancer of the rights and liabilities of the parties. Certain contracts provide for the presence of an intermediate Dispute Review/ Resolution Board whose role and effectiveness has been the subject matter of contention. There might be an intervening period necessitated by the contract to explore the possibility of amicable settlement of disputes. Final resolution of disputes is achieved through the statute backed arbitration process. This paper brings forth the salient features of the entities involved in the dispute resolution process and analyses their status and functioning. The paper concludes with certain suggestions for improvement.

Introduction

1.1 It is a fact that road projects are considered to be among the most essential among infrastructural works in the country. Indias road network is used to transport the bulk of inland goods and passenger traffic. The road network is crucial to Indias economic sustenance and growth. Whether it be apples from Kashmir, slag transported in specially designed trucks or oversize components of rockets, the demands on the road network have been on the increase. With growing international exposure, people of India have begun to expect and demand the best quality roads that will enable high level of mobility across the length and breadth of the country. Quality of roads has become an important political issue of late with development being measured against quality and coverage of road networks. It is not surprising that among the various infrastructure sectors, after electricity, the Planning Commission has envisaged highest capital inflow into the development of the road sector in the country. 1.2 The government has clearly declared its intention and commitment to develop a world class road infrastructure

in the country and the Central government and numerous State governments have begun identifying key stretches for prioritising the construction, strengthening and widening of new roads. It is necessary to effect implementation of this intent by the awarding of large specialized contracts. With the standards of work and expectation of users becoming more exacting, contracts have become increasingly specialized and complicated with the rights and obligations of parties spelt out explicitly. It has been realized that to expect the participation of competent contractors from around the world, it is necessary to induce a balance between contracting parties so that the incentive for participation is appropriate and the resolution of consequences is effected in a fair and equitable manner. Howsoever detailed or carefully prepared a written contract may be, it is inevitable that circumstances will arise where the parties may be in dispute as to the interpretation of contractual conditions and obligations and rights of parties to the contract. It thus becomes necessary for a neutral body to examine the contentions of parties and resolve the disputes effectively. It is necessary to have a modus of dispute resolution which is acceptable to all

*Manager (Technical), Bihar State Development Corp. Ltd. Patna, e-mail:prabchan3@rediffmail.com **Advocate, Contract Management Consultant, Visiting Faculty, IIM Ahmedabad, e-mail: krishnan.v78@gmail.com Written comments on this paper are invited and will be received upto 30 June 2010 .

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Gupta & Venkataraman on action to realize the compensation. Such compensation could be in the form of money or could require relaxation of some other contractual stipulation like time. In certain cases like situations of force majeure, either party may be freed from certain obligations. In certain cases, external events can also imply compensation as the risks for events like catastrophic natural calamities or unforeseen physical circumstances could be borne by either one party. Certain claims could arise on considerations that not grounded on the exact terms of the contract but on reliefs offered by statutory law or customs of the trade. The exact nature of the relationship between the parties would depend on the nature of the project. Not all contracts manage to capture the relationship accurately. 2.2 It has been observed that certain typical disputes arise during the execution of works contracts in the road construction sector. The disputes can be described to fall into the following broad categories: a) Obligations of Employer and Engineer like handover of land and timely communication of drawings and approvals not being met leading to claims for time extension and cost compensation.

parties including the employer, financer and contractor. The process should instill confidence in the stake-holder parties so that the desired result of the creation of an infrastructure asset takes place in an efficient manner. 1.3 In the recent past, one very popular standard form for the execution of works contracts has been the FIDIC (Federation Internationale Des IngenieursConseils) Conditions of Contract for works of Civil Engineering Construction. This document forms the core of many modern road contracts and understanding its implications has become key to the successful management of such contracts. The technical aspects of the work are usually governed by the Specifications for Road and Bridge Works (Fourth Revision) published by the IRC on behalf of the Ministry of Road Transport and Highways, Government of India. Each contract would effect amendments to these standard documents based on the specific attributes of the project. 1.4 This paper examines the modes of dispute resolution prevalent in modern road contracts in India based on the FIDIC standard form for works contracts. Common causes leading to disputes in road contracts are first listed and discussed in brief to give an idea of the nature of disputes requiring resolution. The next portion of this paper presents the common dispute resolution modalities provided for by FIDIC works contracts. Arbitration as a mechanism for dispute resolution is then discussed. A discussion of the different variations in the dispute resolution procedure adopted by various FIDIC formats is analysed. The paper then brings out suggestions for systemic improvement. 2 Dispute events in Road Construction Contracts

b) Events defined as an Employers risk could lead to a cause of action for cost compensation by the Contractor. In the case of the FIDIC form of the Contract, this would correspond to what is commonly referred to as Force Majeure events. c) Variations to the terms of the contract and dissatisfaction with respect to the definition and valuation of variations is a common cause of disputes.

2.1 Modern road construction projects involve significant mobilization of men, machinery, material and other resources. For the construction of new road and the widening of existing roads to multi-lane highways, it is necessary to acquire large contiguous stretches of land and relocation of public utilities on a large scale. During the execution of such projects, it is inevitable that disputes arise in the interpretation of the rights and liabilities of the contracting parties. Road construction contracts have a multiplicity of reciprocal promises that unfold as the work progresses. At different stages of the progress of the works, each party has a responsibility to undertake specific actions. Failure to take a certain action would entitle the opposite party to raise claims and take

d) External Events (not always directly in reference to contractual clauses) like an abnormal rise in certain input costs could form the subject matter of a dispute. e) Ambiguity in contract conditions and the inability of parties to agree on the intent of the Contract could lead to disputes. Subsequent Legislation where it is not uncommon to find that both the fact of existence of a subsequent legislation and also the contractual intent for compensation on that account is the subject matter of dispute resolution.

f)

g) Unjustified termination of Contract and its

Journal of the Indian Roads Congress, January-March 2010

An Overview of Dispute Resolution Procedures in Road Projects With Reference to the Fidic 103 Form of Contract and Suggestions for Improvements consequences including the encashment of bank guarantees can be brought up for resolution as a dispute. h) Cost claims on account of delay due to faults not attributable to the Contractor which could also include disputes with regard to the right of the Employer to impose liquidated damages. It is observed generally that most disputes that require resolution are raised by the Contractor. This should not be taken to mean that it is mostly the Employer who is in default of contract. Given the fact that the Employer has a discretionary power in the contract not available to the Contractor, the Employer usually has the option of exercising that discretion in the approval of payments or extension of time. The Contractor typically reacts to certain actions of the Employer which the Contractor considers unjust. It is left to the dispute resolution procedure to determine which party is on the right side of the contract. 3 Alternate Dispute Resolution modalities adopted in FIDIC based contracts determinations of extra cost and extension of time which would have a crucial bearing on the final contract price besides progress of the works. This would imply that the role of the Consulting Engineer in acting as a balancer of rights is somewhat diminished. Cases are not lacking where the Engineer makes mistakes leading to situations when either party may feel aggrieved by actions of the Engineer. Since neither party is bound by the decisions of the Engineer. the dispute resolution mechanism is resorted to when parties disagree with or dispute the decisions of the Engineer. 3.2.2 The Engineer continues to be an important resource to make recommendations, based on intimate knowledge of day to day functioning of the Contract, to aid the discretion of the Employer. The presence of the Engineer also ensures that important contemporary documentation is maintained. The Engineers correspondence with the parties helps in throwing light into the facts and circumstances surrounding the disputes and helps tribunals and the court in understanding the genesis of contentious issues. When the presence and actions of the Engineer fails to avoid disputes, it is necessary to refer the dispute to a neutral body of individuals for resolution. 3.3 Dispute Review/ Resolution Boards 3.3.1 The law of the land provides for the formation of Arbitration Tribunals in accordance with the Arbitration and Concilliation Act, 1996 for the final resolution of disputes of parties contractually agreeing to such a procedure. Some contracts provide for a quasi legal body variously named as Disputes Resolution Board, Disputes Adjudication Board or Dispute Board. Such bodies are intended to provide a site based, less formal and optionally binding solution to disputes prior to the process of arbitration. Such Boards are intended to be constituted at the time of commencement of contract. Senior professionals with experience in road construction and knowledge of contact conditions are nominated to the Board with the consent of both parties. Boards meet at certain regular intervals to assess the progress of the works. Parties refer matters to the Board for dispute resolution and in most cases, hearings are held similar to arbitral hearings with a limited procedural formality including provision for written pleadings and adherence to the principles of natural justice. There is a strict time limit (which is frequently extended by parties with mutual consent) to give recommendations on disputes and parties have the option of either accepting

3.1 Context 3.1.1 Disputes between parties are instances of differences in opinion in the way a contract ought to be interpreted. In most cases, it is the existence of financial implications that causes parties to take rigid stances to their respective positions. When a dispute develops, it is expected that parties would begin taking steps to communicate their positions by correspondence. It is common to find many overlapping and successive mechanisms for the resolution of disputes. 3.2 Role of the Engineer in Dispute Resolution 3.2.1 In the FIDIC form of the contract, importance is given to the role of an intermediary, neutral Engineer to administer the contract on a day to day basis. The Engineer who is appointed by the Employer is expected to determine, certify, approve actions and decide issues in accordance with the provisions of the contract. In a way, the presence of an Engineer is expected to be an important balancer in the manner in which a contract is administered. However, it is not uncommon that discretionary powers over the Engineers determinations are reserved by the Employer thus restricting the powers of the Engineer to independently manage the contract. These powers could include decisions on variations,

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Gupta & Venkataraman on 3.4.2 The process of Arbitration is governed in Indian law by the Arbitration and Conciliation Act, 1996. The Act provides wide latitude to contracting parties to choose the mode of Arbitration and composition of the Arbitral Tribunal. The procedure to be followed by the Tribunal is also open to determination either by mutual agreement of the parties or by the Tribunal itself. The high degree of autonomy provided to the process of Arbitration is evident by the fact that even in cases when a party decides to challenge an arbitrator or question the jurisdiction of a tribunal, the Act provides that the Arbitral Tribunal is competent to decide such challenges or questions of jurisdiction. This is quite remarkable in itself and demonstrates the diligent faith of the law that solutions to disputes arising out of contracts can be found within the four walls of the contract. When parties to a contract, by their free will, are ready to submit all or some of their contractual disputes to arbitration, they are expected to do so with open eyes aware of all consequences (beneficial or otherwise). At the end of an Arbitration process, the award of the Arbitral Tribunal, if no action to set it aside is taken within the prescribed time, becomes enforceable like a court decree. It is pertinent to note that the courts do exercise a supervisory role over Arbitral Proceedings vide the provisions of Sections 34 and 37 of the Act based on actions initiated by aggrieved parties. While Section 37 gives a limited right to appeal against the decisions of the Arbitral Tribunal on questions of its own jurisdiction and interim measures of protection granted/ refused by it, Section 34 provides only the right to make an application to a court (within 3 months of receiving the arbitral award) to set aside the award. The application to set aside an award can be made under certain exacting conditions. Thus, although the court has a supervisory role to play in ensuring that Arbitral Tribunals are functioning within the ambit of the law, the court cannot actually go into the merits of the dispute to judge whether the Arbitral Award is correct or otherwise. Thus, in the case of the actual award of an Arbitral Tribunal, the court does not sit in appeal over the contents of the award but only decides if the due process of law has been followed in the conduct of the proceedings. Section 34 (2)(b)(ii) of the Act provides the only latitude to the courts to examine the contents of the Arbitral Award to determine whether it is in conflict with the public policy of India. The term public policy has a nebulous meaning and offers opportunity to the aggrieved party to direct the courts attention to the contents of the award. The courts have

the recommendations (in which case they become final and binding) or else referring the dispute onward to arbitration. 3.3.2 Opinions however remain divided with regard to the functional necessity and efficacy of such intermediary bodies. It is true that prior to a more formal and adversarial environment of an Arbitral Tribunal, parties have an opportunity to test the quality of their respective positions in an open forum. It is not uncommon to find certain cases withdrawn on the basis of discussions effected during the proceedings of a Dispute Review Board. On the other hand a large majority of disputes, though deliberated upon at length before these intermediary bodies, do not reach settlement and ultimately get referred to arbitral tribunals. One reason suggested for the lack of acceptance of DRB recommendations is the fact that the general culture and practice of the construction sector has been skewed towards powerful Employers who had a final say on contractual matters. With the practice of excepting matters from litigation on the basis of Employers decision, it is difficult for parties (especially the Employer) to accept the findings of the DRB if it goes against their stand. It is felt that the time and resources devoted to effecting DRB proceedings could rather have been spent on arbitral proceedings where matters are resolved with greater finality and backed by statute. Whatever be the case, it is eventually the wisdom of the parties at the time of entering into the Contract that lead to the adoption of particular modes of dispute resolution as allowed by the law. 3.4 Arbitration 3.4.1 Arbitration is provided for by statutory law as an alternative to submitting disputes to the jurisdiction of civil courts. In the Indian context, the overburdened court system would mean that an unduly long period elapses before disputes reach final settlement. This can be detrimental to the influx of finance and capital into projects. Court procedures and legal intricacies can also seem unfamiliar to foreign contractors and investors who would prefer arbitration with its simplified procedures largely governed by the mutual agreement of parties. There is also the opportunity of involving technical and subject experts for the resolution of specific disputes. Certain parties prefer the relative privacy offered by arbitral proceedings. It has become standard practice in all large infrastructure projects to refer disputes to a duly constituted arbitral tribunal.

Journal of the Indian Roads Congress, January-March 2010

An Overview of Dispute Resolution Procedures in Road Projects With Reference to the Fidic 105 Form of Contract and Suggestions for Improvements been watchful in attempting to balance the intent of the law by appropriately shaping the ambit of public policy with reference to the Act. It should be noted that even if the court finds that an Arbitral Award is in conflict with the public policy of India, the court cannot correct or otherwise finally decide the contractual dispute between the parties. The court can merely set aside the Arbitral Award. The matter in dispute has to be finally resolved by parties by resort to Arbitration. 3.4.3 In case of arbitration proceedings other than an international commercial arbitration, when the place of arbitration is situated in India, the law expects the Arbitral Award to be decided in accordance with: a) The substantive law for the time being in force in India Usages of trade applicable to the transaction in the clause. It is expected that the Engineer apply his independent judgment to the matter and decide in accordance with contractual provisions. If either party is dissatisfied with the decision of the Engineer or if no decision is notified to parties within 84 days, parties have 70 days after receipt of the notice of decision or expiry of 84 days to communicate intention to commence arbitration with respect to the dispute in question. However, the decision of the Engineer as a valid forum for dispute resolution gains value when neither party gives notice to commence arbitration within the 70 day-period provided for in the Contract. After the expiry of the due 70 day-period, the decision of the Engineer becomes final and binding on the parties. It is also pertinent to note that even if the dispute has been referred to arbitration, parties shall immediately give effect to decisions of the Engineer till the same is to be revised by amicable settlement or arbitration. 4.1.2 The unamended fourth edition of the FIDIC works contract form contains an intermediate provision for amicable settlement after a dispute has been referred to arbitration. Arbitration proceedings involve considerable cost and time implications. The adversarial proceedings during Arbitration also leads to souring of relationships between employers and contractors due to the necessary wear that litigation requires. Thus, even after notice to commence arbitration has been given, a final, mandatory opportunity is provided to parties to resolve the dispute amicably. 56 days have been provided for the process of amicable settlement following the communication of the notice to commence arbitration. No strict procedure has been laid out for the amicable settlement procedure though it is possible that the Engineer may also be involved if the parties so desire. Sometimes, both parties try to involve their top management in the picture to resolve the dispute. Following the 56-day mandatory period, even if the parties do not reach an amicable settlement on the dispute, the aggrieved party may choose to commence arbitration. 4.2 Amended format 4.2.1 Many contracts in India which are financed by institutional lending agencies like the International Bank of Reconstruction and Development (World Bank) or the Asian Development Bank that have been awarded during the past decade have made amendments to the FIDIC standard form to provide for a Dispute Resolution Board. Since 1994, all World Bank financed projects with value greater than US Dollar 50 million have provisions for DRB. In due course, the provision for a DRB has been

b) The terms of the Contract c) 3.4.4 The courts have time and again ruled that an Arbitral Tribunal is a creature of the contract and that its Award must be confined to the four walls of the contract. Any determination or award made in transgression of a valid contract can be considered a dismeanor on the part of the Arbitral Tribunal. 3.4.5 It is thus seen that when contracting parties decide to refer disputes to arbitration, they are agreeing to a self governing mechanism where resolution of contractual disputes is to be found within the contract itself. This is in fact a sign of a mature economy that its citizens possess the skills and wisdom to govern their contracts effectively without recourse to the controlling authority of the State. 4 Different Dispute Resolution Paths Based on the FIDIC Contract

4.1 Fourth Edition 4.1.1 The FIDIC form of the Contract (Fourth Edition 1987), is a version used in most road contracts in India. The unamended form of the 1987 edition FIDIC works contract gives a more formal role to the Engineer in dispute resolution. As per Clause 67.1, either the Employer or the Contractor have to, in the first instance, submit all disputes of any kind to the Engineer. The Engineer has 84 days after receipt of notice to decide the dispute. It is pertinent that no formal procedure of hearings, written claim/response, etc, is laid down

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Gupta & Venkataraman on 4.2.3 The DRB usually has a fixed period of 56 days for resolving a dispute. The result of the efforts of the DRB is termed as a recommendation. This would imply that the DRB only has a role to prescribe certain solutions without any obligation on parties to accept the same. However, there are provisions wherein DRB recommendations are binding in the short term and final and binding upon the occurrence of certain events. Once a DRB issues a recommendation, it is binding upon the parties who are to give effect to them promptly until revised by an arbitral award. If the DRB issues recommendations within 56 days and if no party, being dissatisfied with the recommendations, gives notice to refer the dispute to arbitration, the recommendations of the DRB become final and binding on the parties. Only within a 14 day period of the issue of recommendations by a DRB (if issued within 56 days) or after the expiry of the 56-day period (due to the inability of the DRB to issue recommendations), can parties exercise their right to refer a dispute to arbitration. This is a necessary condition precedent for a dispute to become a valid subject matter of arbitration. If the right to refer a matter to arbitration is not exercised within the said period, no arbitration can commence with respect to that dispute. It has been felt by some that the 14-day period is too short for parties to take a considered view of the DRB recommendations. To safeguard their rights, parties often automatically refer disputes to arbitration thus rendering the DRB efforts somewhat futile. However, non adherence to the time limit can be excused by a competent court after consideration of valid reasons as per the provisions of Section 43(3) of the Arbitration and Conciliation Act, 1996. Thus, the DRB procedure has some semblance of a forum empowered to effect final and binding resolutions to disputes on the happening of certain events. The amended FIDIC clause also usually deletes the subclause relating to amicable settlement before proceeding to arbitration. This is probably due to the assumption that the DRB proceeding, with its informal process of arriving at a settlement incorporates elements of an amicable settlement. 4.2.4 The Annexe to the Conditions of Particular Applications in such amended contracts may also provide for detailed procedures that govern the conduct of the parties and the DRB. DRB members are expected to meet norms of eligibility which include: a) absence of financial interest in the Contract

adopted by contracting organizations as part of their standard procedure. In the case of the 1999 edition of the FIDIC form of the works contract, even without amendment, there was provision for a Dsiputes Adjudication Board (DAB). In the format prescribed in the 1999 FIDIC form, either party that is aggrieved by the Engineers decision could refer a dispute to the DAB in writing. The DAB, which is a panel of experts, must give a written decision on the dispute within 84 days of receipt of the written reference. On being dissatisfied with the DABs decision, either party may give notice of such dissatisfaction to the other party within 28 days of the receipt of the decision failing which the decision becomes final and binding on the parties. On issue of such a notice of dissatisfaction, the parties necessarily spend 56 days to attempt amicable settlement after which, if no amicable settlement is reached, the matter is settled by arbitration. 4.2.2 The amended dispute resolution procedure bypasses the Engineer by providing for the constitution of a dispute resolution/ review board. The board consists of three members experienced with the type of construction and conditions of contract involved. One member is selected by each party within 28 days of the letter of acceptance of the contract. The third member is to be selected by the two selected members within a further period of 14 days or some such period as stipulated in the contract. If any of these steps do not take place within the specified time periods, then at the request of either or both parties, a previously named nominating authority in the bidding document would select the DRB member. It is seen that in many cases, the contractually stipulated time lines are not followed and the formation of DRB takes much longer period even upto a year. The role of the appointing authority is rarely involved in the formation of the DRB. It is also observed, that in certain contracts, reference to the named appointing authority has not been made at all. An interesting feature of the DRB is that, unlike as required by the procedure for arbitration, there is a further requirement that all members of the DRB have to be approved by both parties. This would imply that the less formal process of the DRB enjoys a greater trust of both parties to help evolve a mutually acceptable solution by the persuasive efforts of the DRB to accept a settlement. However, it is not uncommon to find that the DRB hearings also adopt the adversarial method with very less opportunity for conciliation or mediation to arrive at mutually acceptable solutions to contentious issues.

Journal of the Indian Roads Congress, January-March 2010

An Overview of Dispute Resolution Procedures in Road Projects With Reference to the Fidic 107 Form of Contract and Suggestions for Improvements b) absence of previous employment with any of the contracting parties or the Engineer c) disclosure of any recent or close professional or personal interests with any director, officer or employee of the employer, contractor or the Engineer to arbitrations after the expiry of the 56-day period. Reasons for such delay are many including the inability of parties to complete written pleadings in a timely manner. Sometimes a DRB is saddled with multiple disputes simultaneously and is unable to complete the proceedings for some disputes within the 56-day period. On an average around three to four months are taken by DRB to issue recommendations. The period of 56-day given to DRB appears to be inadequate. 4.3 Bank Harmonised Edition of FIDIC 2005 4.3.1 In 2005, FIDIC published a separate form for use in works funded by Multilateral Development Banks. The General (unamended) Conditions therein have a significantly revised clause relating to dispute resolution. This form of the Contract has only recently seen the light of day in Indian contracts. It is noted that the dispute resolution clause in the bank harmonized FIDIC works contract form is similar, if not the same as the dispute resolution clause given in the FIDIC General Conditions of Contract for EPC/ Turnkey Projects (first edition, 1999). 4.3.2 The clause specifies that all money claims and applications for extension of time have to be given as soon as is practicable and not later than 28 days after the Contractor became aware of the event or circumstance. Claims have to be submitted with details and supporting particulars to the Engineer within 42day of the Contractor becoming aware of the relevant circumstances. The clause clearly lays down that if such notice has not been given within the 28-day period mentioned, the Contractor shall lose all entitlement to the claim and the Employer shall be discharged of all liability in connection with the claim. 4.3.3 After receiving detailed particulars of a claim, the Engineer has 42-day to process the same. The 42-day period can be extended if proposed by the Engineer and accepted by the Contractor. Even if the Engineer needs more time and details to process the claim fully, the Engineer is expected to respond within the stipulated time indicating whether he agrees or disagrees with the claim in principle. 4.3.4 Any dispute including dispute over the actions of the Engineer may be referred by parties to a Dispute Board (DB). It is interesting to note that unlike the previous requirement of the FIDIC form, there is no mandatory requirement that all disputes have to, in the first place, be referred to a DRB. However, this

d) abstinence from employment with either parties of the contract or the Engineer without prior consent of the parties and other board members e) not entering into discussions for future employment with any parties of the contract or with the Engineer impartiality and independence

f)

g) fluency in English 4.2.5 Thus, it is clear that there are stringent and explicit norms of impartiality and independence that DRB members are expected to follow. Payments to DRB members are to be shared equally by the employer and the contractor thus, further ensuring impartiality. The DRB members are required to visit the site at regular intervals so that they are acquainted with the factual circumstances prevalent at site. If both parties lose confidence in the members of the DRB, the parties can unanimously disband the DRB and reconstitute a new DRB. The DRB procedure also lays down requirements for providing full opportunity to both parties to a hearing. Thus-it would appear that the DRB guidelines and procedure have laid sound foundations for a successful system of early resolution of disputes. 4.2.6 However, in practice, only minority of disputes are finally resolved at the DRB stage. Inevitably, parties continue on to the arbitration stage rendering the DRB only a formality in a long winding process that ends up in the higher courts for final settlement. One reason is the perceived lack of efforts at reaching negotiated settlements. If either party sticks to its stand till the end, there is low probability of agreeing to a full stop to a dispute especially when further opportunities exist for agitating before a higher forum. It is observed that employer organizations that have a tendency to avoid the genesis of disputes (by reaching negotiated settlement by mutual consensus) also have a greater chance for accepting DRB recommendations. 4.2.7 In many cases, the DRB is unable to communicate recommendations in time leading to automatic referrals

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Gupta & Venkataraman on resolution have significant positive effect on the conduct and attitude of parties. 5 Analysis and Suggestions

clause retains the requirement that until a notice of dissatisfaction with respect to the DB has been given by either party, no entitlement to commence arbitration exists. Thus, it would appear that it is not possible to bypass the DB and directly proceed to arbitration. 4.3.5 The DB consists of one or three members to be appointed by a date set out in the Contract. As in the case of the DRB, all DB members have to be approved by both parties. As in the case of the DRB, in case there is a stalemate or inaction by any entity to appoint DB members, a previously named appointing authority or official in the bidding document is requested by both parties to appoint a member to the DB in consultation with both parties. The DB has 84 days to decide a dispute after receiving notice of reference. In the case of the DB, the nomenclature of the result of its efforts is a decision unlike a recommendation of the DRB. As in the case of the DRBs recommendation, a DBs decision is binding on parties who have to give effect to the decision forthwith even during the pendency of further efforts at dispute resolution including amicable settlement and arbitration. If either party is dissatisfied with the decision of a DB or if the DB is unable to give its decision within 84 days, parties are entitled to commence arbitration within a period of 28 days after receipt of the decision or the passage of 84 days without a decision being given by communicating a notice of dissatisfaction. This notice of dissatisfaction, given within the stipulated time period entitles a party to commence arbitration. This is like a condition precedent. 4.3.6 Even in the case a notice of dissatisfaction is given, there is a mandatory period of amicable settlement for 56 days before commencement of arbitration. Thus, it is seen that the harmonized form of the FIDIC form makes all possible attempts of averting formal litigation and only when the long drawn period of engineers efforts (42 days), DB decision (84 days), notice period (28 days) and amicable settlement (56 days) elapse that arbitration can commence. In a way, this entire process also has the effect of dissuading parties from commencing arbitration (which is both expensive and effort intensive). This also has the effect of giving arbitration tribunals a much deeper view of the dispute as it has passed through multiple stages of formal scrutiny with reasoning of many intervening, impartial entities available. Since the bank harmonized form of the FIDIC contract is still in a nascent stage of implementation, it is yet to be seen if the changes in the format for effecting dispute

5.1 Disputes do not occur in vacuum. In most cases, the genesis of disputes is in the inadequacy of the contract to capture accurately the circumstances affecting the contract. In many cases, it is the detailed project report (DPR) which is the basis of most contractual assumptions. Proper investigations on the ground, proper topographic surveys, use of design principles and preparation of a sound DPR would ensure that bids are based on realistic assumptions of the tender rather than requiring revisit during the pendency of the contract. 5.2 Much error of intent originates during the stage of tender clarification and negotiation. Loosely worded documents are rarely clarified explicitly despite requests for clarification. In the case of many contractors, those responsible for compiling bid rates do not place sufficient stress on the actual scope of the works and the necessary margin for error. 5.3 The Employer is often caught ill prepared when it comes to providing possession to unencumbered site within the time specified in the Contract. This is an important factor that gives rise to significant claims for extension of time, cost overruns and non imposition of Liquidated Damages. Often, in the case of government contracts, greater reliance is placed on external influences like departmental policy and audit concerns rather than a faithful interpretation of the prevailing words of the contract. For disputes to be appreciated and the contemporarious roles of parties to be assessed, it is necessary for dispute resolution fora to rely on evidence. On this front, it is common to find parties that have acted negligently by not taking necessary action within the time specified in the contract. The FIDIC contract imposes duties on parties to act within certain fixed times in order for the actions to be valid and tenable. Failure to take the necessary actions, including, for example communicating intention to refer a dispute to arbitration within the specified time limit, would act as a limitation and bar to the future invocation of a remedy. These contractually specified limitations to remedy have been recognized by the law as failure to meet conditions precedent. It is thus necessary that parties remain attentive to their respective rights and take timely action to prevent the extinguishment of remedies. There is thus a strong need to exercise judicious management

Journal of the Indian Roads Congress, January-March 2010

An Overview of Dispute Resolution Procedures in Road Projects With Reference to the Fidic 109 Form of Contract and Suggestions for Improvements of the contract evidenced by timely and appropriate communication in writing to and between parties from the stage of its drafting and inception until the successful achievement of contractual objectives. 5.4 In the case of the DRB recommendations, it has been felt that the amended FIDIC form provision of 14 days as a time limit for giving notice to commence arbitration is too short as parties do not have sufficient time to come to terms with the implications of DRB recommendations. To safeguard their interests at times, arbitral proceedings are commenced even if not necessary. It is suggested that keeping in mind the necessity to not burden parties with delay in final resolution of disputes and the necessity to be able to properly come to terms with DRB recommendations so as to be able to attempt settlement, a period of 42 days should be available to both the parties after receipt of DRB recommendations before necessarily being forced to submit the dispute to arbitration. It is also felt that all claims within a certain threshold (based on the contract price) should be finally decided by the DRB and excepted from arbitration or further litigation. This would cause parties to be more attentive and careful during the DRB stage while also giving meaningful relevance to the role of the DRB. It will help if the party going to DRB submits full supporting documents along with his notice of dispute and request for recommendation. The period of 56 days for the DRB could be increased to 84 days as in case of the World Bank harmonized document. For the DRB to be a more effective body for dispute resolution, the focus should shift away from making recommendations and towards achieving settlement of disputes. The DRB should be empowered to meet with high powered committees of both the Employer and Contractor so that in the presence of the DRB attempt to reach a mutually arrived at settlement moderated by the DRB. If either partys stand is capricious or untenable and the party is adamant to stick to the untenable stand, the DRB should record so. If the parties are unable to reach a mutually agreeable settlement, the DRB should prepare a report of the attempts at mutual reconciliation and the matter should be left there for the parties to take into arbitration if required. By doing away with the need of a decision/ recommendation, the focus will shift away from the adversarial stance which can actually do more harm and instead the focus would shift to trying to arrive at a mutually agreeable consensus. 5.5 In case of valuation of variations, both the Engineer and the Employer should take timely steps to complete the process of determination and approval, and the time gap between the execution of varied work and the decision of rate for varied work should be minimal. 5.6 In the final analysis, it has to be understood that even the best worded contract will fail to generate the desired results if the parties to the contract do not possess the right attitude and genuineness of intent to complete the work. Roads are public works executed by a team of the Employer, the Engineer and the Contractor. Each member of the team is motivated by a variety of incentives. While it is expected that the Employer plays a lead role in the creation of the finished road within the contractual framework of time and cost and to the level of quality intended, the Engineer and the Contractor have to actively cooperate to ensure success. Regular high level meetings by top decision making functionaries of the Employer and Contractor would help in building trust and eliminating avoidable disputes. It should be reemphasized that, howsoever detailed and lengthy a contract is, it is only a representation of the intent of contracting parties. If there is unison of intent, success in implementation can be achieved without the occurrence and subsequent resolution of disputes. 6 Acknowledgement

The authors would like to gratefully acknowledge the advice given by Shri D P Gupta, former Director General (Road Development) and Additional Secretary to Government of India, MORTH while reviewing the draft and giving useful suggestions. References 1. Merani, N.V., Dispute Resolution for Engineering Contracts, published in IRC Journal, October 1998, Vol 59-2. Gupta, D.P., Some Thoughts on Dispute Resolution Mechanism in Highway Sector, published in IRC Journal, October 2005, Vol 66-3. Alimchandani, C.R., Dispute Resolution Mechanism Experience and How to Make it Effective, published in IRC Journal, October 2005, Vol 66-3. Mookerjee, Ashok, Important issues/ points on Dispute Adjudication and Resolution, published in IRC Journal, October 2005, Vol 66-3.

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110 An Overview of Dispute Resolution Procedures in Road Projects With Reference to the Fidic
Form of Contract and Suggestions for Improvements

Gupta & Venkataraman on

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Lal Singal, K.B., Expeditious Disposal of Arbitration Cases, published in IRC Journal, October 2005, Vol 66-3. Gupta, O.P. & Gupta, Vijay, Role of Dispute Review Board for Resolving Construction Conflicts Its Constitution, Advantages and Disadvantages, published in IRC Journal, October 2005, Vol 66-3. Majumdar, Basab, Dispute Resolution Institutional Arrangements, published in IRC Journal, October 2005, Vol 66-3. Goel, O.P., Dispute Resolution Mechanism Functioning of Arbitrators/DRBs, published in IRC Journal, October 2005, Vol 66-3. Markanda, P. C., Building and Engineering Contracts Law and Practice, 2nd Edition (2007), Wadhwa and Company

Practice of Arbitration and Conciliation , 2nd Edition (2006), Lexis-Nexis Butterworths 11. Guide to the Use of FIDIC Conditions of Contract for Works of Civil Engineering Construction Fourth Edition 12. Conditions of Contract for Works of Civil Engineering Construction FIDIC - Part I General Conditions Fourth Edition 1987 (1992 reprint) 13. Bank Harmonised Edition of the Conditions of Contract of Construction FIDIC 2005 14. Conditions of Contract for EPC/ Turnkey Projects FIDIC - First Edition - 1999 15. Arbitration and Conciliation Act, 1996 16. Indian Contract Act, 1872 17. Final Report of the Brief Study on Operation of Dispute Review Boards in India World Bank, 2006

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10. Malhotra, Indu & Malhotra O.P. The Law and

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