Construction Arbitration

Construction Arbitration — Issue 98

The Contractor was awarded the work for strengthening and four-laning of existing two-lane sections between Km. 307.500 and Km. 231.00 of the Etawah Bypass on NH-2 in Uttar Pradesh. The contract was an item-rate contract. In Phase I, the work to be undertaken by the Contractor was to provide two additional lanes by widening the existing 7.3 km-long two lanes on the left-hand side, which was later changed to placing one lane on either side of the existing two lanes within the same land. Phase II involved entirely new construction of four lanes of 6.7 km, the scope of which remained unchanged.

The Contractor accepted the variation in Phase I, thereby committing itself to execute the varied works within the provisions of the Contract without any reservations. The Contractor raised disputes with respect to the rates approved by the Employer for the varied items of work. The Engineer rejected the claims of the Contractor. Disputes between the parties were referred to arbitration.

The arbitral tribunal held that the revision of rates under Clause 52 of the GCC was permissible where both conditions were satisfied, i.e., the item constituted more than 5% of the contract price and the executed quantity varied by more than 25% from the BOQ. The Contractor remained bound to execute the original quantities as per the BOQ at the quoted rates, and accordingly, the revised rates could apply only to the quantities in excess of the BOQ.

There were delays due to hindrances on the site. The arbitral tribunal considered overhead charges at 8% of the contract price and calculated the additional overheads for Phase I as well as ROB works during the 16.5-month extension period. After applying a 20% reduction for mitigation of losses, the arbitral tribunal awarded the claim in favour of the Contractor. The arbitral tribunal observed delays on both sides and awarded the amount only for the actual works carried out by the Contractor.

The Employer awarded the contract to the Contractor for the laying of a pipeline for regasified liquid natural gas from its dispatch terminal at Dabhol, Maharashtra, to the receipt terminal at Bibadi near Bangalore. Disputes arose between the parties and were referred to arbitration.

There was a delay in the supply of the monthly quantity of pipes as stipulated in the delivery schedule by the Contractor. The arbitral tribunal rejected the contention that time was not of the essence of the contract and held that the Employer was justified in imposing PRS on account of the delay.

The tribunal further held that the Employer was not required to prove actual loss. It also observed that, in public utility projects, it is difficult to establish the actual loss suffered due to delay. The Employer had argued that the PRS formula constituted a genuine pre-estimate of the loss likely to be suffered and that such loss was difficult to quantify. The Court upheld the award.