Construction Arbitration — Issue 99
Hindrance register - evidentiary value
Hindrance register - evidentiary value - site records and the Hindrance Register have greater evidentiary value than general IMD rainfall data in determining the actual impact of weather on construction activities - arbitral tribunal justified in preferring contemporaneous site records.
Delay caused by additional works and late instructions
Delay caused by additional works and late instructions - arbitral tribunal rightly considered that late drawings, revised drawings, changes in scope and additional works disrupted the critical path, irrespective of whether the final contract value exceeded the tender value.
Quantification of Overheads
Quantification of Overheads - where prolongation is established, production of vouchers or salary registers for every item of expenditure is unnecessary - industry-standard formulae and the CPWD Circular constitute a reasonable basis for quantifying overhead losses - arbitral tribunal’s reliance on the CPWD Circular for quantification of overheads was held to be a recognised and reasonable method in government construction contracts and did not amount to a finding based on no evidence.
Departmental determination of delay not binding
Departmental determination of delay not binding on arbitral tribunal - findings of the Member (Planning) and Engineer-in-Charge regarding justified and unjustified delay were not binding on the arbitral tribunal, which was required to adjudicate the dispute independently on the evidence.
Escalation awarded because prolongation resulted from Employer’s breach
Escalation awarded because prolongation resulted from Employer’s breach - once Employer-caused delay was established, the Contractor became entitled to compensation for increased material costs during the extended period - denying such compensation would unjustly enrich the Employer.
Delay in completion
Delay in completion - delay was attributable to multiple events beyond the Contractor’s control, including defective pile design, repeated redesigns, revised drawings, governmental inquiry, suspension of the project for nearly five years, and subsequent changes in seismic design requirements.
Termination of contract
Termination of contract - change from pile foundation to open foundation, leading to substantial changes in design and quantities exceeding permissible limits under the Tender Transparency Rules - Employer itself acknowledged that the existing contract had to be closed because of major design modifications and statutory procurement requirements, rather than any contractual default by the Contractor - termination not justified.
Payment towards incomplete works
Payment towards incomplete works - once the contract was terminated otherwise than for the Contractor’s breach, Clause 60.2, and not Clause 42.4 governing completed BOQ items, regulated valuation of the work executed - compensation could include partially completed work and reasonable costs incurred by the Contractor.
Claim for loss of profit and loss of profitability
Claim for loss of profit and loss of profitability - proof of - loss of profit arising from prevention of completion of the contract may be assessed by reasonable estimation using recognised formulae such as Hudson, Emden or Eichleay - whereas loss of profitability requires strict proof.
The dispute arose out of a construction contract awarded by the Employer to the Contractor for the construction of a New Control Tower-cum-Technical Block at Mangalore International Airport. The project was completed after a delay of 477 days. The Employer granted extensions of time during execution but ultimately concluded that only 142 days of delay were justified while 335 days were attributable to the Contractor. Consequently, liquidated damages were imposed by the Employer. The Contractor challenged the decision before the Dispute Resolution Committee, whose recommendations were not accepted. Arbitration was thereafter invoked.
Before the arbitral tribunal, the Contractor principally claimed refund of liquidated damages, compensation for prolongation/overhead expenses, escalation in material prices during the extended period and other consequential reliefs. The arbitral tribunal held that the entire delay was attributable to the Employer because of continuous hindrances such as delayed drawings, revisions in drawings, changes in scope of work, site constraints and adverse weather conditions. The arbitral tribunal directed refund of liquidated damages, awarded overhead compensation etc. The Court rejected all challenges and upheld the arbitral award.
The dispute arose out of a contract awarded by the Employer to the Contractor for construction of a flyover near Perambur Railway Station over the existing subway. The contract was an item-rate contract with a Bill of Quantities, with an agreed completion period of 18 months. During execution, the project encountered serious technical difficulties. The original pile design failed load tests, resulting in stoppage of work, redesign of the foundation, revision of drawings, changes in scope, and execution of a revised agreement.
Before the project could substantially progress, the Government constituted a Commission of Inquiry into various flyover projects, causing the entire work to remain suspended for nearly five years. After the project was revived, the parties entered into a supplementary agreement revising the contract value and completion period. Soon thereafter, Chennai was reclassified from Seismic Zone II to Zone III, necessitating another redesign of the flyover. Fresh structural designs, revised quantities and additional works were required. The Contractor demanded execution of another supplementary agreement and revision of rates to accommodate the altered scope of work.
As no resolution was reached, the Contractor withdrew its manpower and equipment from the site. The Employer thereafter terminated the contract and completed the remaining work through a fresh contractor. The Contractor invoked arbitration seeking compensation under various heads, while the Employer filed counterclaims. The arbitral tribunal, by a majority award allowed the claims of the Contractor, after adjusting the counter claims, together with interest.
The Court found that the delay was attributable to multiple events beyond the Contractor’s control, including defective pile design, repeated redesigns, revised drawings, governmental inquiry, suspension of the project for nearly five years, and subsequent changes in seismic design requirements. The Court held that the Employer itself acknowledged that the existing contract had to be closed because of major design modifications and statutory procurement requirements, rather than any contractual default by the Contractor. The Court held that the interpretation was a plausible contractual view and could not be interfered with.
The Court found that although the arbitral tribunal correctly recognised that damages under section 73 of the Contract Act require proof, the award towards idle costs without any supporting evidence was held to be patently illegal.
Authors
RAUTRAY & CO.
Law Firm
Dharmendra Rautray &
Ginny Jetley Rautray
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