India: Reduce Construction Disputes To Accelerate India's Infrastructure Rollout

Last Updated: 28 September 2015
Article by Ranjit Prakash and Anshuman Pande

It is important to demystify the conundrum of construction disputes, so that India can accelerate its infrastructure growth and wasteful disputes are avoided.

Infrastructure projects in India are hamstrung with schedule delays and, therefore, cost overruns. As per flash report released by Ministry of Statistics in August 2014, as many as 295 infrastructure sector projects worth Rs 150 crore or more were delayed with total cost overrun of over Rs 1 lakh crore. Concerns including land acquisition, timely approvals and shortage of resources, including infrastructure, are the primary bottlenecks faced by the project stakeholders and have been well-documented. However, other significant causes for these delays are change of project's scope, shortage of manpower and technical resources, lack of planning and finance management, to name a few. Delays (and even rampant delays) are clear and present risks for infrastructure projects in India.

It is somewhat of a contradiction, therefore, that while most project contracts identify causes and provide for mechanisms to deal with delays, legal disputes between developers and executing agencies (contractors) related to time overruns appear to have been increasing over the past few years. These rising incidences have serious time and cost implications, not only for these two sets of parties, but also for the project at large. It is, thus, important to demystify the conundrum of construction disputes, so that India can accelerate its infrastructure growth and wasteful disputes are avoided.

The genesis of such disputes is usually the delay clause in the contract itself – which imposes stiff legal ramifications upon the party responsible for the delay. Such defaulting party would not only be barred from claiming its contractual remedies for delay (which include monetary compensation, the power to disengage from the contract, compensation for special losses and the like), but may also become legally liable to the other party for recompense of losses. Losses involving goodwill and reputation, as well as the possibility that the future of the project may be seen to be in jeopardy, would, in any case, be grievous in the event of a contractual default.

Unsurprisingly, when the time comes to ascertain the causes and to determine the way ahead, both developer and contractor start passing the buck upon each other and expend a lot of time and energy in hurling accusations and proclaiming innocence. Further, each party commissions one-sided 'causes of delays' reports ascribing the reasons upon the other. In fact, to bolster their positions, parties usually start making paper trails almost from the 'Day Zero' of the construction – since legal evidence of a party's stand is based upon the documents it relies on. Such papertrails include vaguely worded correspondences, written records of meetings and decisions, and technical records to avert any legal liability. The absence of any impartial delay analysis and poor recordkeeping complicates the ascertainment of the actual causes of delays.

Moreover, in the absence of clarity on causes of the delay, at times one or both parties do not even formally acknowledge the incidence of a delay and hope that the work continues unabated into delayed time.  They often postpone resolution of critical questions, such as:

  • What are the revised timelines for the works? If not, the timeline may be legally deemed to be open-ended and loose, leaving both sides unsure as to the longevity of the project construction;
  • What is the effect of the delay over the remaining works and how would both parties apportion the responsibility to meet the same? This is an important question, especially if such delays lead to a domino effect and cause further overruns;
  • How would cost overruns be met once the works are carried out into delayed time? How would escalated costs of resources, to take one example, be revised, especially in cases of fixed price or lump-sum contracts?
  • If the cause of the delay is contentious, should a party even continue with the project, especially if the other party is shifting blame? The other party is unlikely to change its stand once issues escalate towards a legal dispute.

Parking these issues aside may avoid short-term adverse ramifications to the projects. However, in our experience, these may get further obscured with time, especially as delays have a snowball effect upon all works onsite. Leaving timelines open-ended takes away the legal sanctity of time-bound completion. In most cases, the progress of construction even in the delayed time is in fits and spurts and is usually, never smooth.

It is, therefore, vital that clauses in the contract should be carefully drafted. This would ensure that in the event of an overrun, there are provisions for fresh timelines and the risks and responsibilities of each party can be exhaustively defined, without much ambiguity. The clauses should also provide for protocols and mechanisms for deciding the way ahead. Delay analysis should be exhaustive and objective – possibly coupled with a signoff from a pre-agreed, independent party acceptable to both sides.

If disputes still arise, then parties should take a call on their remedies expeditiously rather than stalling the resolution of issues that would affect the project's progress and their own legal/contractual recourses.

Finally, the need of the hour is honest and transparent dealing between the parties to a project contract – not only through careful contract mechanisms, but also by realistic project management. While it is undeniable that external factors beyond control of both parties do play a major role in delays, the developers and contractors do not help the situation by hurling charges, hiding behind opaque clauses and relying upon reams of paper trails. Such actions only delay the project construction further and most often end up in courts or dispute-resolution forums.

Originally published by Business Standard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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